Gene Patents and Collaborative Licensing Models

Concerns have been expressed that gene patents might result in

restricted access to research and health care. The exponential growth
of patents claiming human DNA sequences might result in patent
thickets, royalty stacking and, ultimately, a ‘tragedy of the anticom-
mons’ in genetics.
The essays in this book explore models designed to render patented
genetic inventions accessible for further use in research, diagnosis or
treatment. The models include patent pools, clearinghouse mecha-
nisms, open source structures and liability regimes. They are ana-
lysed by scholars and practitioners in genetics, law, economics and
philosophy.
The volume looks beyond theoretical and scholarly analysis by
conducting empirical investgation of existing examples of collabora-
tive licensing models. Those models are examined from a theoretical
perspective and tested in a set of operational cases. This combined
approach is unique in its kind and prompts well-founded and realistic
solutions to problems in the current gene patent landscape.

geert ru i va n ov erwa l l e is head of the Research Group ‘Gene

Patents and Public Health’ at the Centre for Intellectual Property
Rights of the Faculty of Law at the University of Leuven, Belgium.
She has recently also been appointed Professor of Patent Law and
New Technologies at the Tilburg Institute for Law, Technology and
Society at the University of Tilburg, the Netherlands.
Cambridge Intellectual Property and Information Law

As its economic potential has rapidly expanded, intellectual prop-

erty has become a subject of front-rank legal importance. Cambridge
Intellectual Property Rights and Information Law is a series of mono-
graph studies of major current issues in intellectual property. Each
volume contains a mix of international, European, comparative and
national law, making this a highly significant series for practitioners,
judges and academic researchers in many countries.

Series editors
William R. Cornish
Emeritus Herchel Smith Professor of Intellectual Property Law,
University of Cambridge
Lionel Bently
Herchel Smith Professor of Intellectual Property Law, University of
Cambridge

Advisory editors
François Dessemontet, Professor of Law, University of Lausanne
Paul Goldstein, Professor of Law, Stanford University
The Rt Hon. Sir Robin Jacob, Court of Appeal, England

A list of books in the series can be found at the end of this volume.
Gene Patents and Collaborative
Licensing Models
Patent Pools, Clearinghouses, Open Source
Models and Liability Regimes

Edited by
Geertrui Van Overwalle
ca mbr idge u ni v ersit y pr ess
Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paulo, Delhi
Cambridge University Press
The Edinburgh Building, Cambridge CB2 8RU, UK

Published in the United States of America by Cambridge University Press, New York

www.cambridge.org
Information on this title: www.cambridge.org/9780521896733

© Cambridge University Press 2009

This publication is in copyright. Subject to statutory exception

and to the provisions of relevant collective licensing agreements,
no reproduction of any part may take place without
the written permission of Cambridge University Press.

First published 2009

Printed in the United Kingdom at the University Press, Cambridge

A catalogue record for this publication is available from the British Library

Library of Congress Cataloguing in Publication data

â•…G ene patents and collaborative licensing models : patent pools, clearinghouses,
open source models, and liability regimes / [edited by] Geertrui Van Overwalle.
â•… p.â•… cm. – (Cambridge intellectual property and information law)
â•… Includes bibliographical references.
â•… ISBN 978-0-521-89673-3 (hardback)â•… 1.╇ Genetics–Patents.
╅I.╇ Overwalle, Geertrui van.╅ II.╇ Series: Cambridge intellectual property
and information law.
â•…[ DNLM: 1.╇ Genetics–ethics.â•… 2.╇ Genetics–legislation & jurisprudence.
3.╇ Licensure–legislation & jurisprudence.â•… 4.╇ Models, Economic.
5.╇ Patents as Topic–ethics.â•… 6.╇ Patents as Topic–legislation & jurisprudence.
QU 33.1 G3256 2009]
â•… QH438.7.G41155 2009
â•… 174.2´96042–dc22
â•… 2009006845

ISBN 978-0-521-89673-3 hardback

Cambridge University Press has no responsibility for the persistence or

accuracy of URLs for external or third-party internet websites referred to
in this publication, and does not guarantee that any content on such
websites is, or will remain, accurate or appropriate.
 Contents

List of contributors page viii

Preface xxiii
Foreword: Jean-Jacques Cassiman xxv
List of abbreviations xxix

Part Iâ•… Patent pools 1

╇ 1 Patent pooling for gene-based diagnostic testing.
Conceptual€framework 3
birgi t v er beu r e

╇ 2 Case 1. The MPEG LA® Licensing Model. What

problem does it solve in biopharma and genetics? 33
l aw r ence a . hor n

╇ 3 Case 2. The SARS case. IP fragmentation and

patent pools 42
ca r m en e . cor r e a

╇ 4 Critical analysis of patent pools 50

jorge a . g ol dst ei n

Part IIâ•… Clearinghouses 61

╇ 5 Clearinghouse mechanisms in genetic diagnostics.
Conceptual framework 63
est h er va n zi m m er en

╇ 6 Case 3. The Global Biodiversity Information Facility (GBIF).

An€example of an information clearinghouse 120
ja m es l . edwa r ds

╇ 7 Case 4. BirchBob. An example of a technology

exchange clearing house 125
est h er va n zi m m er en a n d dir k avau

v
vi Contents

╇ 8 Case 5. The Public Intellectual Property Resource for

Agriculture (PIPRA). A standard license public sector
clearinghouse for€agricultural IP 135
a l a n b . ben n et t a n d sa r a boet t iger

╇ 9 Case 6. The Science Commons Material Transfer

Agreement Project. A standard licence clearinghouse? 143
t h i n h ngu y en

10 Case 7. The collective management of copyright and

neighbouring rights. An example of a royalty
collection clearinghouse 151
ja n cor bet

11 Comment on the conceptual framework for a

clearinghouse€mechanism 161
m ich a el spence

Part IIIâ•… Open source models 169

12 Open source genetics. Conceptual framework 171
ja n et hope

13 Case 8. CAMBIA’s Biological Open Source

Initiative (BiOS) 194
n el e bert h el s

14 Case 9. Diversity Arrays Technology Pty Ltd. (DArT)

Applying the open source philosophy in
agriculture 204
a n dr zej k i l i a n

15 Critical commentary on ‘open source’ in the life

sciences 213
a rt i k . r a i

16 Several kinds of ‘should’. The ethics of open source in

life sciences innovation 219
a n ton y s . tau bm a n

Part IVâ•… Liability regimes 245

17 Pathways across the valley of death. Novel intellectual
property strategies for accelerated drug discovery 247
a rt i k . r a i , j erom e h . r eich m a n ,
pau l f. u h l ir a n d col i n crossm a n
 Contents vii

18 Case 10. The International Treaty on Plant Genetic

Resources for Food and Agriculture (ITPGRFA).
The Standard Material Transfer Agreement as
implementation of a limited compensatory liability regime 289
v ictor i a h enson - a pol l on io

19 Critical analysis: property rules, liability rules and

molecular futures. Bargaining in the shadow of the
cathedral 294
da n l . bu r k

Part Vâ•… Different perspectives 309

20 Gene patents: from discovery to invention.
A geneticist’s view 311
gert m at t h i js a n d gert - ja n b . va n om m en

21 ‘Patent tsunami’ in the field of genetic diagnostics.

A patent practitioner’s view 331
jacqu es wa rcoi n

22 Gene patents and clearing models. Some comments from a

competition law perspective 339
h a n ns u l l r ich

23 Access to genetic patents and clearing models.

An economic perspective 350
r ei ko aok i

24 The role of law, institutions and governance in

facilitating access to the scientific research
commons. A philosopher’s perspective 365
tom dedeu rwa er der e

Part VIâ•… Summary and concluding analysis 381

25 Of thickets, blocks and gaps. Designing tools to
resolve obstacles in the gene patents landscape 383
geert ru i va n ov erwa l l e

Index 465
 Contributors

r ei ko aok i is Professor at the Institute of Economic Research,

Hitotsubashi University, Tokyo, Japan. She received her PhD in eco-
nomics from Stanford University. She has published in American
Economic Review, International Journal of Industrial Organization, Games
and Economic Behaviour, Journal of Economics, Management and Strategy,
Journal of Economic Theory and Journal of Japanese and International
Economies. Her current research focuses on intellectual property
clearing�houses and exchanges, patents and other collec�tive rights
organ�izations, technology standards and patents, and historic systems of
innovation. She has undertaken research for Japan Patent Office,€Japan
Fair Trade Commission and the World Health Organization.
�
dir k avau has a Masters in Science and Engineering and a Masters in
Business Administration. He has over 20 years experience in business
to business sales in a high-tech environment. Over the years he has built
an extensive worldwide network of contacts within the most prestigious
organizations. He was researcher at IMEC (microelectronics), held dif-
ferent positions in IBM for over ten years and subsequently worked in
telecommunications for Belgacom. He has done consulting work for dif-
ferent multinational companies and has recently been active in Russia,
Ukraine, Romania, Greece and several states in the USA. His expertise
is in sales and sales strategies in high-tech environment as well as stra-
tegic business management. He is a speaker at various conferences. He
can rely on a very broad corporate experience to help define strategies for
multinationals to get more value from the sale of high-tech solutions and
technologies. At present he is director of Birchbob (www.birchbob.com).
a l a n b . ben n et t is the Associate Vice Chancellor for �Research at
UC Davis where he manages InnovationAccess, an organization that
is responsible for technology transfer, business development and tech-
nology-based economic development in the region. He also serves as
the founding Executive Director of the ‘Public Intellectual Property
Resource for Agriculture (PIPRA)’, an organization comprised of

viii
 List of contributors ix

forty-six universities in thirteen countries dedicated to the collective

management of intellectual property to support broad commercial and
humanitarian uses of agricultural technologies. Bennett earned BSc
and PhD degrees in Plant Biology at UC Davis and Cornell University,
respectively, and joined the UC Davis faculty in 1983. He is a Fellow of
the American Association for the Advancement of Science (AAAS) and
of the California Council for Science and Technology (CCST).
n el e bert h el s holds an MSc degree in Bio-engineering and a PhD
degree in Biochemistry. She studied at the University of Leuven,
Belgium and at Stellenbosch University in South Africa. After her stud-
ies she worked briefly as a patent advisor. She currently performs inter-
disciplinary research at the Center for Intellectual Property Rights and
the Center for Human Genetics of KULeuven. Her current research
focuses on patenting and licensing in the field of genetic diagnostics and
implications on public health provisions. Her work also feeds into the
evaluation of collaborative rights mechanisms such as patent pools and
clearinghouses, in the field of genetics.
sa r a boet t iger is Director of Strategic Planning and Development
at PIPRA (The Public Intellectual Property Resource for Agriculture,
www.pipra.org). She is an agricultural economist with a background
in intellectual property (IP). In addition to her work at PIPRA she
publishes in the field of IP law and policy, is a member of the Board
of Directors for the Institute of Forest Biotechnology, and works as a
consultant for the Bill & Melinda Gates Foundation. Her professional
interests are focused on the design and implementation of practical
services to support innovation and improve livelihoods in developing
countries. Her research interests are in the law and economics of: IP
rights and developing countries; open source in copyright and patents;
innovative IP sharing mechanisms; US universities’ technology transfer
systems; and the strategic use of patents in developed countries. Prior
to her work at PIPRA she worked at the University of California Office
of the President, Office of Technology Transfer. Sara Boettiger holds a
BA, University of Arizona; MSc, University of California, Berkeley and
a PhD, University of California, Berkeley.
da n l . bu r kis the Oppenheimer, Wolff & Donnelly Professor of Law
at the University of Minnesota, where he teaches courses in Patent
Law, Copyright, and Biotechnology Law. An �internationally prom-
inent authority on issues related to high technology, he is the author
of numerous papers on the legal and societal impact of new technolo-
gies, including articles on scientific misconduct, on the regulation of
x List of contributors

�
biotechnology, and on the intellectual property implications of global
computer networks. Professor Burk holds a BSc in Microbiology (1985)
from Brigham Young University, an MSc in Molecular Biology and
Biochemistry (1987) from Northwestern University, a JD (1990) from
Arizona State University, and a JSM (1994) from Stanford University.
Prior to his arrival at the University of Minnesota, Professor Burk taught
at Seton Hall University in New Jersey. From 1991 to 1993 he was a
Teaching Fellow at Stanford Law School. He has also taught as a visitor
at a variety of prominent institutions, including Cornell Law School, the
University of California at Berkeley, the University of Toronto Faculty
of Law, University of Tilburg, the Munich Intellectual Property Law
Center, and the Program for Management in the Network Economy at
the Universita Cattolica del Sacro Cuore in Piacenza, Italy.
j e a n - jacqu es cassi m a n was born on 25 April 1943 in Brussels.
After his training as an MD with specialty in Pediatrics, he spent five
years at the University of Stanford, CA. Since 1984 he is full Professor
of Human Genetics and since 1999, division head of the Center for
Human Genetics in Leuven, Belgium. He is director of the laboratory
for forensic genetics and molecular archeology and coordinator of EU
projects on Cystic Fibrosis. From 1993–9 he was Secretary-General
of the European Society of Human Genetics and from 2002 on he is
liaison officer for the ESHG to the International Federation of Human
Genetics Societies. He is secretary of EPPOSI (European Platform
for Patient Organizations, Science and Industry) and vice-president
of VIWTA (Flemish Institute for Science and Technological aspects
of the Flemish Parliament). He is coordinator of the EU-funded net-
work of Excellence EUROGENTEST, which aims at harmonizing and
improving the quality of genetic testing in the EU. As from 2007 he is
president-elect of the ESHG.
ja n cor bet was born in Antwerp in 1932. Doctor of law, Free
University Brussels. Free University of Brussels: lecturer (intellectual
property, media law) (1971); professor (1986): emeritus (1997). Belgian
society of Authors, Composers and Publishers “SABAM”: legal coun-
sel (1980); director, legal department (1975); director general (1983);
retired (1997). Chairman, editorial board “Auteurs & Media”, Larcier,
Brussels. Publications: “Auteursrecht”, in APR series, Brussels,
1991–2. Contributions in several Belgian legal reviews, among others
in “Copyright”, Geneva; Revue internationale du Droit d’auteur, Paris;
Journal of the Copyright Society of the USA, New York; Il Diritto di Autore,
Milan; Journal of Law and Commerce, Pittsburgh; Temas de Propriedad
Intelectual, Coimbra.
 List of contributors xi

ca r m en e . cor r e a
graduated as Attorney at Law from the Universidad
Santa Maria Law School in Venezuela and received an LLM degree at
University of Minnesota Law School, US. She also undertook the Tax
Law Specialization at Universidad Central de Venezuela. After some
years, she moved to the Netherlands where she studied for a masters in
European and International Comparative law at Erasmus University of
Rotterdam law school. During her career in Venezuela, Carmen worked
as an in-house attorney for two large Venezuelan corporations and in a
law firm as an associate in the areas of tax, employment and commer-
cial law. After moving to the Netherlands, she worked in ViroNovative
and other spin-off companies of ErasmusMC, including ViroScope
(formerly CoroNovative). Recently, she moved back to the USA where
she works as Contracts Manager for the Office of Industrial Liaison at
Mount Sinai School of Medicine in New York City.
is a graduate of Duke Law School who has begun
col i n crossm a n
work on a PhD on Competitive Biology.
tom dedeu rwa er der e is Research Director at the Biodiversity
Governance Unit of the Centre for the Philosophy of Law and professor
at the Faculty of Philosophy, Université Catholique de Louvain. He is a
graduate in polytechnical sciences and philosophy, with a PhD in phil-
osophy. He is in charge of the direction of the global public goods sub-
network of the European REFGOV network (6th framework program)
and the biodiversity sub-network of Belgian Interuniversity network
IUAPVI on democratic governance. Recent publications include ‘From
bioprospection to reflexive governance’ in Ecological Economics and
a special issue on the Microbiological Commons in The International
Social Science Journal (fall 2006, vol. 188).
ja m es edwa r ds is the Executive Secretary of the Global Biodiversity
Information Facility (GBIF), an intergovernmental organization
devoted to making biodiversity data freely and openly available
via the Internet. He is also the Director of the GBIF Secretariat in
Copenhagen, Denmark. He received his BSc (1967) and PhD (1976)
degrees from the University of California at Berkeley. His research
interests are the systematics and functional morphology of amphibians
and fishes, and biodiversity informatics. From 1974–6, Dr€ Edwards
was an Instructor in the Biology Department at Queens College of the
City University of New York, and from 1976–82 he was an Assistant
and Associate Professor in the Zoology Department at Michigan State
University. In 1982, he took a position in the Directorate for Biological
Sciences at the US National Science Foundation (NSF), which funds
xii List of contributors

the vast majority of non-medical biological research at US colleges

and universities. While at the NSF, he served successively as Program
Director for several programs (Systematic Biology, Biological Research
Resources, Field Stations and Marine Laboratories, and Biotic Surveys
and Inventories), as Deputy Division Director for Biotic Systems and
Resources, and as Deputy Assistant Director for Biological Sciences. In
the latter capacity, he was the second-in-command of a yearly budget
of approximately $500 million. Dr Edwards served on several Federal
task forces, and was the chair of an interagency steering committee
on Biological and Ecological Informatics. He also chaired a working
group on Biological Informatics of the Megascience Forum of the
Organization for Economic Cooperation and Development (OECD),
which in 1999 recommended the formation of the GBIF. Dr Edwards
then chaired the Interim Steering Committee which developed the
Memorandum of Understanding for the organization and recruited
the requisite number of governmental members and funding to allow
it to come into existence in March 2001. Currently, he is on a five-year
leave of absence from NSF in order to serve as the Executive Secretary
of GBIF.

jorge a . g ol dst ei n is presently the Managing Director of Sterne

Kessler Goldstein and Fox, PLLC, a 250-person IP law firm in
Washington DC. He is the Founder of its Biotech/Chem Practice and
co-chair of its Nanotechnology Practice. Dr Goldstein has about twen-
ty-seven years of experience in preparing and prosecuting patent appli-
cations; contesting interferences, oppositions and arbitrations; litigating
in District and Appellate courts, both as counsel and expert witness;
and counseling clients on intellectual property portfolio strategies, trade
secrets, due diligence, licensing and research agreements, evaluation of
patent portfolios, and the IP aspects of mergers and acquisitions. He
has lectured extensively on IP topics. Noteworthy among several appel-
late cases, in 1988 Goldstein was lead counsel in In re Wands et al. 8
USPQ2d 1400 (Fed. Cir.), a pivotal decision on biotechnology enable-
ment and deposit requirements. The Legal Times of Washington, after
a poll of clients and peers, chose him twice as a ‘Leading Lawyer’ in
Washington DC: In 2003 as one of the top IP Attorneys and again in
2006 as one of the top Life Sciences Attorneys.
v ictor i a h enson - a pol l on io
has been a Senior Scientist in the
Consultative Group on International Research (CGIAR), and the
Manager of an office that assists all fifteen International Research
Centers of the CGIAR, the Central Advisory Service on Intellectual
 List of contributors xiii

Property, since 2000. She has over sixteen years of experience in IP

and technology transfer. She has a BSc in Animal Science and a PhD in
Experimental Pathology; both degrees were awarded by the University
of Florida. Her dissertation research in immunogenetics was carried
out under the supervision of Dr E.K. Wakeland. Her subsequent post-
doctoral training in mammalian genetics was performed at the Jackson
Laboratory under the supervision of Drs. Joseph Nadeau and George
Carlson. Dr Henson-Apollonio was an Assistant and Associate Professor
in Biology at Purdue University where she carried out research on the
immunobiology of the model fish, the Japanese medaka and Steelhead
trout. She was also involved in characterizing the population genet-
ics of the introduced alien plant species, purple loosestrife. Victoria
was a consultant to the Argonne National Laboratory in the Legal and
Technology Transfer Division and worked for Argonne as a Patent
Agent, technology transfer specialist, and patent evaluator, for two
years before taking her current job with the CGIAR System. She has
numerous scientific publications, and has participated in the drafting
of many patents in the biotechnology area.
ja n et hope is an Australian Research Council Postdoctoral Fellow
affiliated with the Australian National University’s Regulatory
Institutions Network. A qualified biochemist and molecular biologist,
she was admitted as a barrister and solicitor of the High Court of
Australia in 1997 and spent several years as Counsel to the Australian
Government Solicitor. In 2001, she left her constitutional law prac-
tice to study for a doctorate in intellectual property law and policy
under the supervision of Professor Peter Drahos. In January 2003,
while still a PhD student, Dr Hope authored a substantial website
on open source biotechnology at http://rsss.anu.edu.au/~janeth. This
site now attracts more than a hundred requests for pages per day and
has been cited in numerous publications, including The Economist.
Dr€Hope’s Â�doctoral dissertation, titled ‘Open Source Biotechnology’,
was �completed in December 2004 and is available online. Her PhD
examiners, Professors Yochai Benkler and John Barton, described her
dissertation as ‘timely; indeed, ahead of its time’, ‘bringing Â�intellectual
order and rigorous analysis to an issue that has hitherto been the
basis of speculation’. At RegNet, Dr Hope helps lead a vibrant group
of young scholars in the Centre for Governance of Knowledge and
Development, headed by Professor Drahos. The work of this �centre
is diverse, ranging from environmental and social sustainability
�initiatives to an investigation of the relationship between intellectual
property and genetic resources access regimes in Andean countries.
xiv List of contributors

The group’s common interest is in the interaction between knowledge

flows and development, �interpreted broadly to include both capacity
building and the lifting of restrictions on the ability of individuals and
groups to pursue their own projects.
l a r ry hor n is CEO of MPEG LA, world leader in alternative technol-
ogy licences enabling users to acquire worldwide patent rights neces-
sary for a technology standard or platform from multiple patent owners
in a single transaction. Horn has directed MPEG LA’s licensing and
business development since the company began operations in 1997.
Prior to joining MPEG LA, Horn was Head, Business Development,
Marketing and Sales for Martek Biosciences Corporation (1994–97);
President and Owner of HKM Corporation (1985–93); Senior Vice
President and General Counsel of Public Broadcasting Service (PBS)
where he also managed human resources, labour negotiations and con-
ference services while the board searched for a new president (1978–85);
Attorney with the US Securities and Exchange Commission’s Office
of General Counsel (1975–8); with a Washington, DC law firm; and
Adjunct Professor of Chinese Law, Georgetown University Law Center
(1974–75). Lorn graduated from Yale University (BA, Chinese Studies)
and Columbia University (JD) where he was awarded the law school’s
highest honour for writing.
obtained a PhD in Molecular Biology at the
r ich a r d j ef f er son
University of Colorado, followed by an NIH fellowship at the Plant
Breeding Institute in Cambridge where he was responsible for creat-
ing and distributing amongst the most widely cited and licensed plant
biotechnologies. Jefferson is the founding father of CAMBIA, an inter-
national non-profit institute based in Australia founded in 1991, and is
dedicated to development of tools and enabling technologies to promote
equitable life-sciences-enabled innovation worldwide. Richard Jefferson
has worked and taught extensively in the developing world, supporting
the Rockefeller Foundation’s biotechnology network for over ten years,
and has worked as senior staff for the FAO, and consultant for other
UN Agencies. He has been profiled in media including The Economist,
Newsweek and Nature. Biotechnology and Red Herring. CAMBIA’s
work has recently featured in cover editorials in most major life sciences
journals. In 2003 he was named by Scientific American in the List of
the World’s Fifty Most Influential Technologists, cited as the World
Research Leader for 2003 for Economic Development. Richard is an
Outstanding Social Entrepreneur of the Schwab Foundation, for which
he is a regular panelist at the Davos meetings of the World Economic
Forum.
 List of contributors xv

is the founder and Director of DArT P/L. He is leading

a n dr zej k i l i a n
the company, contributing primarily to business and technology develop-
ment. A significant part of his role is the promotion of DArT and DArT
P/L both in Australia and internationally. He has delivered nearly a hun-
dred seminars and presentations, including plenary talks at international
conferences. Andrzej’s commitment to the broadest possible delivery
of DArT is fulfilled primarily through his efforts towards building the
DArT Network. Andrzej is active in graduate and postgraduate educa-
tion mainly as a supervisor of several PhD candidates registered at the
Australian National University, Charles Sturt University and University
of Sydney. After completing his PhD on population genetics of Arabidopsis
thaliana at the Silesian University, Poland, Andrzej spent a year (1988) as
a Postdoctoral Fellow funded by the FAO/IAEA at the Plant Breeding
Institute (PBI) in Cambridge, England. He was working with Dr Mike
Gale on comparative RFLP mapping of barley and wheat, contributing
to the first indication of extensive RFLP map colinearity among cereals
(synteny). While at PBI, he also collaborated with Dr Richard Jefferson
in the first field release and analysis of a genetically engineered food
crop. After two years (1989–90) as an Assistant Professor of Genetics
at Silesian University, Andrzej spent several years as a visiting profes-
sor at Washington State University (Andy Kleinhofs lab) in the North
American Barley Genome Mapping Program. While in the US, Andrzej
cloned barley Telomere Associated Sequences that allowed genetic map-
ping of almost all barley telomeres. He was the first to report telomerase
activity in plants and to show that the enzyme is developmentally regu-
lated. Andrzej’s research in the early 90s provided the first comprehensive
proof of microsynteny among cereal genomes. In 1996 Andrzej worked as
a Visiting Fellow at the Rice Genome Project in Tsukaba, Japan, continu-
ing the research on rice-barley microsynteny.
gert m at t h i js(1963, PhD) is the Head of the Laboratory for Molecular
Diagnostics at the Center for Human Genetics of the University of Leuven,
Belgium. He is a molecular geneticist, involved in the diagnostics
� of inher-
ited diseases since 1994. He became Assistant Professor at the University
of Leuven in 1997, Associate Professor in 2000 and Professor in 2003.
His major research interest is in Congenital Disorders of Glycosylation
(CDG), a group of rare inborn errors of metabolism. He is one of the lau-
reates of the Körber European Science Award 2004. At the national level,
he has been a driving force for a revision of the reimbursement �system
for genetic tests. He chairs the Patenting and Licensing Committee of
the European Society of Human Genetics (ESHG), but is also actively
involved in the European �opposition against the BRCA patents.
xvi List of contributors

t h i n h ngu y en is responsible for advising on legal issues relating to

Science Commons and for implementing its strategy and operations. He
joined Science Commons after working as licensing attorney, and then
corporate counsel, for Business Objects, a maker of business intelligence
and reporting software. He also worked as licensing attorney for Crystal
Decisions, Inc., prior to its acquisition by Business Objects. Before that,
he practised as an associate in the Technology Transactions Group of
Wilson, Sonsini, Goodrich & Rosati, a Silicon Valley law firm, where
his work focused mainly on licensing transactions involving strategic
�collaborations and joint ventures, particularly in life sciences. Nguyen
received a BA in chemistry from Harvard University in 1996 and a
JD from Harvard Law School in 1999. He is admitted to practice in
California.
a rt i r a i is an expert in patent law, law and the biopharmaceutical
industry, and health care regulation. Her recent publications include
‘Open and Collaborative Research: A New Model for Biomedicine’,
in Intellectual Property Rights in Frontier Industries: Biotech and Software
(AEI-Brookings Press, 2005); ‘Finding Cures for Tropical Diseases:
Is Open Source an Answer?’, Public Library of Science: Medicine
(2004) (with Stephen M. Maurer and Andrej Sali); ‘Collective Action
and Proprietary Rights: The Case of Biotechnology Research with
Low Commercial Value’, in International Public Goods and Transfer of
Technology under a Globalized Intellectual Property Regime (Cambridge
University Press, 2005); and ‘Engaging Facts and Policy: A Multi-
Institutional Approach to Patent System Reform’, 106 Columbia Law
Review (2003). Professor Rai joined the Duke Law faculty in 2003. In
the fall of 2004, Rai was a Visiting Professor at Yale Law School. Prior
to joining Duke, she was on the faculty of the University of Pennsylvania
Law School, where she was also a visiting professor in fall 2000. Rai
graduated from Harvard College, magna cum laude, with a BA in bio-
chemistry and history (history and science), attended Harvard Medical
School for the 1987–8 academic year, and received her JD cum laude
from Harvard Law School in 1991.
j erom e h . r eich m a nis Bunyan S. Womble Professor of Law at Duke
Law School. He has written and lectured widely on diverse aspects of
intellectual property law, including comparative and international intel-
lectual property law and the connections between intellectual property
and international trade law. His articles in this area have particularly
addressed the problems that developing countries face in implementing
the World Trade Organization’s Agreement on Trade-Related Aspects
of Intellectual Property Rights (TRIPS Agreement). On this and related
 List of contributors xvii

themes, he and Keith Maskus have recently published a book entitled

International Public Goods and Transfer of Technology Under a Globalized
Intellectual Property Regime (Cambridge University Press 2005). Other
recent writings have focused on intellectual property rights in data;
the appropriate contractual regime for online delivery of computer pro-
grams and other information goods; and on the use of liability rules
to stimulate investment in innovation. His most recent articles are:
‘The Globalization of Private Knowledge Goods and the Privatization
of Global Public Goods’ (co-authored with Keith Maskus), 7 Journal
of International Economic Law 279–320 (2004); ‘A Contractually
Reconstructed Research Commons for Scientific Data in a Highly
Protectionist Intellectual Property Environment’ (Â�co-authored with
Paul Uhlir), 66 Law and Contemporary Problems 315–462 (2003); and
Using Liability Rules to Stimulate Local Innovation in Developing Countries:
Application to Traditional Knowledge (with Tracy Lewis) in International
Public Goods and Transfer of Technology Under a Globalized Intellectual
Property Regime (2005). Professor Reichman serves as special advisor
to the United States National Academies and the International Council
for Science (ICSU) on the subject of legal protection for databases.
He is a consultant to numerous intergovernmental and nongovern-
mental organizations; a member of the Board of Editors, Journal of
International Economic Law; and on the Scientific Advisory Board of il
Diritto di Autore (Rome).
m ich a el spence is Vice-Chancellor and Principal of the University of
Sydney. He is a consultant to the London law firm, Olswang. Michael
has a comparative perspective on the law of intellectual property. His
work includes articles and books on both intellectual property law and
the law of obligations, with a critical focus on suggested ethical and eco-
nomic justifications of the existing regimes.
a n ton y tau bm a n was appointed Acting Director and Head of the
Global Intellectual Property Issues Division of WIPO in April 2002,
with responsibility for programmes on intellectual property and ge�netic
resources, traditional knowledge and traditional cultural expressions/
folklore, the life sciences, public health, agriculture, and related public
policy issues. After a diplomatic career with the Australian Department
of Foreign Affairs and Trade (DFAT) from 1988, in 2001 he joined
the newly-formed Australian Centre for Intellectual Property in
Agriculture, at the College of Law at the Australian National University,
teaching and researching on international IP law. From 1998 to 2001,
he was Director of the International Intellectual Property Section of
DFAT, and in that capacity was engaged in multilateral and bilateral
xviii List of contributors

�
negotiations on intellectual property issues, domestic policy develop-
ment, regional cooperation, and TRIPS dispute settlement. He has
taken part in many training and capacity-building programmes on
intellectual property law and TRIPS in Australia and a number of Asian
countries. He joined DFAT in 1988 as a career diplomat, and his ser-
vice included disarmament policy and participation in the negotiations
on the Chemical Weapons Convention, a posting in the Australian
Embassy in Tehran as Deputy Head of Mission, and a posting to the
Hague as Alternate Representative to the Preparatory Commission for
the Organisation for the Prohibition of Chemical Weapons and Chair of
the Expert Group on Confidentiality. He previously worked for WIPO
from 1995 to 1998, his duties then including development cooperation
in Asia and the Pacific, and the development of the revised WIPO pro-
gramme and budget and associated policy development. A registered
patent attorney, he worked in private practice in the law of patents,
trade marks and designs in Melbourne in the 1980s.

born Jena 1939, law studies Berlin, Munich, Tübingen,

h a n ns u l l r ich
Paris; Referendar 1964, Assessor 1970, Dr jur. (Freie Universität Berlin)
1969; M.C.J. (N.Y.U. 1975); Dr jur. habil. (Ludwig Maximilians
Universität, Munich 1982); professor Universität der Bundeswehr
Munich 1985 (civil law, commercial law and business law), ordinarius
1992 (retired 2004); visiting professor College of Europe since 1991; chair
for competition law and intellectual property law, European University
Institute, Florence (2003–6); Rédacteur-en-chef Revue Internationale
de Droit Economique. Part-time assistant to Prof. Dr E.€ Steindorff
(LMU-Munich 1964–1969); member of the research staff and head
of �department Max-Planck-Institute for Foreign and International
Patent-, Copyright-, and Competition Law, Munich, 1971–85; mem-
ber of the Bar of Munich 1970–85; research fellow University of
Cambridge 1992; guest professor University of Technology, Changsha,
China, 1998–2003; part-time professor European University Institute,
Florence 2000–1; visiting professor Duke University School of Law
(Durham, NC) 2005. He is consultant to the German Government and
to various international organisations (including the EU, WIPO, and
UNCTAD). Ullrich is author and editor or co-editor of comparative law
monographs on antitrust and private litigation, standards of patentabil-
ity, legal issues of publicly funded research, software licensing, infor-
mational goods, international antitrust; numerous articles on various
issues of national, European and international antitrust and intellectual
property, on research contracts and research cooperation, technology
policy, corporate law and �international trade law.
 List of contributors xix

pau l f. u h l ir ,JD is Director of the Board on Research Data and

Information at the US National Academies in Washington, DC. He also
directs the Inter Academy Panel on International Issues (IAP) Program
on Digital Knowledge Resources and Infrastructure in Developing
Countries. Uhlir’s area of emphasis is on issues at the interface of sci-
ence, technology, and law, with primary focus on information policy and
management. Prior to that, Uhlir worked in the �following capacities at
the National Academies: Director of the Office of International Scientific
and Technical Information Programs, 1999–2008; Associate Executive
Director of the Commission on Physical Sciences, Mathematics, and
Applications, 1991–1999; and senior staff officer at the Space Studies
Board, 1985–1991, where he managed projects on solar system explor-
ation and environmental remote sensing programs for NASA. Before
joining the National Academies, he worked on remote sensing law and
intergovernmental cooperation in �meteorological satellite programs at
the general counsel’s office of the National Oceanic and Atmospheric
Administration in the US Department of Commerce. Uhlir has pub-
lished and lectured widely, and has been involved in numerous consult-
ing and pro bono activities. He holds a BA in history from the University
of Oregon, and JD and MA degrees in international relations from the
University of San Diego.

gert - ja n b . va n om m en PhD, (1947) is head of the Department of

Human Genetics of Leiden University Medical Center (LUMC) and
founder of the Leiden Genome Technology Center (LGTC), a prin-
cipal genomics facility in the Netherlands. His major research inter-
ests include: neuromuscular and neurodegenerative diseases (with
a focus on Duchenne Muscular Dystrophy, DMD, and Huntington
Disease); development and application of genome research and diag-
nostic �technology for disease study, diagnosis, therapy and preven-
tion, including the societal aspects of genetic advances. Members of
his department have contributed to the finding of the gene defects
and disease mechanisms underlying Duchenne Muscular Dystrophy,
Huntington Disease, Polycystic Kidney Disease, Facioscapulohumeral
muscular dystrophy, Hereditary Neuropathies, Fragile X, Rubinstein-
Taybi Syndrome, Familial Hemiplegic Migraine, Episodic Ataxia. He
has pioneered the development of several mapping techniques, gener-
ating the first megabase map of a human gene (DMD), and of �mutation
detection �techniques, including the development of multicolor FISH
for cytogenetics and the Protein Truncation Test (PTT), which is
now widely used in cancer diagnostics. Professor Van Ommen is past
president and vice president of HUGO (1998–2003), the European
xx List of contributors

Society of Human Genetics (2002–4) and the Dutch Society of

Human Genetics (1993–2000) and Editor-in-chief of the European
Journal of Human Genetics (1997–present). He is present and past
member of several National, EU and HUGO committees in the fields
of Genetics, Innovative Health Care, Genomics, Bioinformatics,
Ethics and IP aspects. He is the Director and Principal Investigator
of the Center for Medical Systems Biology (CMSB), one of the four
Centers of Excellence established in 2003 by the Netherlands Genome
Initiative. The CMSB is a joint activity of Leiden University Medical
Center, Leiden University, Free University Medical Center and Free
University in Amsterdam, TNO Leiden and Erasmus MC Rotterdam,
aiming to improve diagnosis, therapy and prevention of common
�diseases and rare variants thereof.
geertru i va n ov erwa l l e (Dr Iur., 1995, Leuven) is head of the
research group ‘Gene Patents and Public Health’ at the Centre for
Intellectual Property Rights at the University of Leuven (Belgium).
She has recently also been appointed Professor of Patent Law and New
Technologies at the Tilbury Institute for Law, Technology and Society
at the University of Tilburg (the Netherlands). Her fields of research
are patent law, plant breeder’s rights law, patents and biotechnology, IP
and biodiversity, and IP and ethics. She is author of numerous articles
and monographies in the field of patent law in a national and inter-
national context. She has recently published a book on Gene Patents and
Public Health, Brussel, Bruylant, 2007. Professor Van Overwalle teaches
Intellectual Property Law and Patent Law at the University of Leuven,
the University of Brussels and the University of Liège (Lüttich). She
has been visiting Professor at the United Nations University (2000–3)
and Monash University, Melbourne (2003). Geertrui Van Overwalle is
a member of the national High Council for Intellectual Property and
of the national Council for Bioethics. She is a member of the European
Commission’s Expert Group on Biotechnological Inventions and she
contributed as an expert to the Report Policy options for the improvement
of the European patent system commissioned by the European Parliament.
She has recently also undertaken research for the European Group on
Ethics in Science and New Technologies (EGE) and the Japan Patent
Office. Geertrui Van Overwalle has also been appointed as a member of
the Board of Appeal of the Community Plant Variety Office at Angers.
est h er va n zi m m er en is a research fellow of the Research Foundation-
Flanders (FWO) at the Centre for Intellectual Property Rights (Faculty
of Law, University of Leuven, Belgium) (October 2006–present). Her
research covers patent law, trademark law, competition law, �international
 List of contributors xxi

trade law and governance issues. Her PhD research project focuses on
the interface between patent and competition law, in particular in the
biomedical sector. In this framework she has published a number of
articles in peer-reviewed journals on licensing models in the field of
medical biotechnology. In 2004, she joined the Centre for Intellectual
Property Rights as a research fellow in a project called ‘Gene Patents
and Public Health’. Before she worked for two years as a legal assistant
for Judge A.W.H. Meij at the Court of first instance of the European
Communities in Luxembourg in the area of European trademark and
competition law. She studied European & International Law, with
a strong emphasis on European competition law (Master in€ Laws,
University of Tilburg, The Netherlands, 2001), Dutch Private Law
(Master in Laws, University of Tilburg, The Netherlands, 2001) and
did an LL.M. in EU Law and Intellectual Property Law (Master of
Laws, University of Leuven, Belgium, 2002).
birgi t v er beu r e is post-doctoral research associate at the Centre
for Intellectual Property Rights of the University of Leuven, Belgium.
Her research focuses on empirical patent surveying and the study of
licensing models, both in the field of medical biotechnology. In this
�framework she has published a number of articles in peer reviewed
�journals. In 2004, she joined the Centre for Intellectual Property
Rights as a research fellow in a project on ‘Gene Patents and Public
Health’. At the same time, she works as a patent engineer in private
practice. Before, she worked for two years as a post-doctoral researcher
at the Laboratory of Molecular Biology of the MRC, Cambridge, UK.
She obtained her PhD at the Rega Institute for Medical Research,
University of Leuven, Belgium, in the field of Medicinal Chemistry.
jacqu es wa rcoi n is a partner of Cabinet Régimbeau, Paris, since
1983. He is a chemist (graduated in chemistry) and he is a European
and French Patent Attorney. He has considerable experience in the
patent field, with emphasis in life sciences, especially biology. He has
been involved in many international litigations, licensing negotiations
and IP evaluations before IPO. He is a member of various national and
international professional organisations, among which the AIPPI and
the EPI. He is an expert with the French ministry of research (ACI)
and has given many lectures with international organisations such as
OECD, UNESCO, in particular on the strategic aspects of industrial
property. He is also Visiting Researcher, Bio IP Course, Department of
Medical Genome Sciences, Graduate School of Frontier Sciences, The
University of Tokyo, in charge of licensing lectures in ‘Sciences Po’ in
Paris and in CEIPI in Strasbourg.
 Preface

At present the genetics community is increasingly concerned that patents

might lead to restricted access to research and health care. Thought-
ful observers are increasingly expressing concerns that the exponential
growth of patents claiming human DNA sequences may lead to patent
thickets, royalty stacking and, ultimately, to a ‘tragedy of the anticom-
mons’ in the genomic field. An anticommons effect may also arise from
blocking patents. Concerns have also been voiced with regard to down-
stream research as new genetic inventions might not find their way into
products and a translational gap might emerge.
In an attempt to capture and comprehend these recent developments,
and to reflect on potential remedies, the Centre for Intellectual Property
Rights of the University Leuven (Belgium) organised a two-day inter-
national workshop on ‘Gene Patents and Clearing Models: From Concepts
to Cases’ on 8–9 June 2006. This workshop took place in the framework
of a research project on ‘Gene Patents and Public Health’ sponsored
by the Fund for Scientific Research Flanders (FWO, Belgium – Grant
number G.O120.04), EuroGenTest (a Network of Excellence set up
under the European Union Framework Programme 6 – Contract num-
ber 512148) and the Vancraesbeeck Fund (K.U.Leuven, Belgium). For
the research that led to the workshop and the present book, as well as
for the workshop, we are very grateful to those organisations.
The workshop aimed at exploring models designed to render patented
genetic inventions accessible to further use in research and to diagnosis
and/or treatment in further depth, and to investigate alternative mod-
els. The models include patent pools, clearinghouse mechanisms, open
source models and liability regimes. There is a clear need to examine
in more depth to what extent these schemes can be tailored to meet the
needs of promotion and protection of innovation in human genetics.
The workshop aimed at combining both theoretical concepts and
practical issues involved in applying these models in genetics, by invit-
ing academics as well as business people and practitioners. The work-
shop equally aimed at developing a multidisciplinary point of view, by

xxiii
xxiv Preface

confronting the views of legal scholars, geneticists, economists and phi-

losophers.
The present book contains all papers presented at the workshop, as
well as a few contributions by scholars not present, which were added
later. In covering the various models the same format is followed in the
first four parts of the book. First, the model is described and the con-
cepts underlying the model are explored in depth. Then, a few cases
are offered where the model has been put to work in practice. Finally,
a critical analysis of the potential of the model for application in the
genetic field is developed. In the fifth chapter the various models are
examined from a wide panoply of perspectives: a clinical geneticist’s
view, a patent practitioner’s perspective, through the lens of competi-
tion law, an economic perspective and an institutional perspective. The
sixth and last chapter recapitulates the major findings and tests them
against a set of pre-assumptions.
The present book moves beyond theoretical and scholarly analysis
into empirical investigation of existing examples. Collaborative licens-
ing models are first examined from a theoretical perspective, where-
upon the findings are tested in a set of operational cases. This combined
approach is unique in its kind and may prompt both well founded and
realistic solutions to the current problems in the current gene patent
landscape.
We hope that this volume thus reflects our ambition to step ‘beyond
the veil of ignorance’1 into open, reflective, critical and constructive
‘model mongering’,2 an enticing exercise in which we would like to
invite all our readers to participate.

geert ru i va n ov erwa l l e

1
╇ Rai, A.K., Reichman, J.H., Uhlir, P.F. and Crossman, C., ‘Pathways across the valley
of death. Novel intellectual property strategies for accelerated drug discovery’, Chap-
ter 17 of this volume p. 270.
2
╇ Hope, J., ‘Open source genetics. Conceptual framework’, Chapter 12 of this volume p.
172, with reference to John Braithwaite.
 Foreword
Some thoughts on the multidisciplinary approach to
the study of patents and health care

At the start of this enticing book, allow me to take you through a few
considerations, which may be more philosophical than genetic.
The first thing is to agree on definitions. Indeed, this is more than
semantics. If you want to be understood by people from other disci�
plines you must be sure to speak the same language. To give you an
example: the contributions in the present book all deal with ‘patents’.
For me as a medical doctor, patent means open as in a patent foramen
ovale, a hole in the heart. I understand that in IPR circles, patent also
mean open, but did this book not come about in an attempt to keep
them patent to access?
Anyway, ‘interdisciplinarity is a type of academic collaboration in
which specialists drawn from two or more academic disciplines work
together in pursuit of common goals’ (a definition found in Wikipedia).
�Interdisciplinary programmes may arise from a shared conviction that
the tra�ditional disciplines are unable or unwilling to address important
problems. They can also arise from new research developments, such
as nanotechnology, which cannot be addressed without combining the
approaches of two or more disciplines. In our field, bioinformatics is
a nice example, since it combines molecular biology with computer
�science.
Interdisciplinary research should be distinguished from transdisciplinary
research. According to the Swiss National research fund, it is intended
to make a contribution towards solving socially relevant issues and
involves practitioners from beyond the realm of science. I guess what we
are doing in the Eurogentest Network of excellence is transdisciplinary,
since we involve patient and family representatives in our activities.
Now, there are varying degrees of interdisciplinarity. In multidisci-
plinarity, researchers from two or more disciplines work together on a
common problem, but without altering their disciplinary approach or
developing a common conceptual framework.
True interdisciplinarity can only be claimed when researchers from
two or more disciplines pool their approaches and modify them so

xxv
xxvi Foreword

that they are better suited to the problem at hand. There is a holistic
aspect in true interdisciplinarity. Indeed the researchers accept from
the outset the idea that all the properties of a given system (biological,
chemical, social, legal etc.) cannot be determined or explained by the
sum of their component parts alone. The system as a whole determines
in an important way how the parts behave. Aristotle already recog-
nised this when he said: ‘The whole is more than the sum of the parts.’
A holistic approach has become a necessity in many disciplines. In
biology, we know that cells, tissues and organs are more than the genes
and pathways which they express. Systems biology has indeed become
a trendy phrase. In philosophy, sociology and psy�chology holistic
approaches are also well known. In medicine holism is almost synonym
of psychosomatic medicine. Alternative medicine has capitalised on
this since it recognises that emotional, mental, spiritual and physical
elements of each person comprise a system, and that the whole person
must be treated, the symptoms as well as the causes of the illness.
Reductionism is the opposite of holism. Scientists may need to have a
reductionist approach to extract a particular mechanism from a com-
plex biological problem. This is a well-known successful approach in
science. Nevertheless, in the back of their minds, good scientists will
remain aware of this necessary, but temporary reductionist approach.
Let us go back then to inter- and multi-disciplinarity and analyse
how these principles are being applied in the present collection and in
the genetics field in general. Does the study of IPR issues in genetics by
lawyers and geneticists constitute an example of multidisciplinary or a
true interdisciplinary approach?
If we consider the sex of the investigators, we have to conclude that the
approach is definitely multidisciplinary. Females and males work on the
same issues. Their perspective, timing, emotions and approaches will
be different. To become truly interdisciplinary the investigators would
have to learn to find a common ground and appreciate the qualities and
shortcomings of the sex of their colleagues. For obvious �reasons I will
not go into this issue any further.
The second issue is the difference in scientific approach. Geneticists
place emphasis on qualitative and quantitative ‘rigour’ and as a result
may think that their approach is ‘more scientific’ than that of their
colleagues from the humanities. In addition, they are used to face the
unexpected outcome from an experiment. Lawyers may associate quan-
titative approaches with an inability to grasp the broader dimensions of
the problem. On the other hand their approach is just to make sure that
the unexpected is covered by the texts.
 Foreword xxvii

While geneticists are very keen to determine the sequence of a piece

of DNA with great accuracy, by repeating the exercise a few times,
they will readily accept that a well-written scientific text has a clear
and obvious meaning. They have a kind of holistic approach when it
comes to interpreting texts. Lawyers on the other hand make a living
finding different interpretations of the same word, the same sentence
or the same text. It is not clear, however, whether at the end the patent
still covers what it is supposed to cover. One also wonders sometimes if
a patent could ever be written and submitted if more than one lawyer
worked on it. One also wonders why some patent applications, written
by geneticists, could stand any challenge by lawyers.
A third issue is the difference in autonomy that the two parties may
enjoy. Biomedical research is known to be expensive and to drain a
good part of the budgets reserved for research. Legal investigations,
with the exception of the legal fees, are cheap, require access to a library
and a PC and are funded accordingly. As in other situations in society,
the rich and the poor may not have the same ambitions and goals.
Is a multidisciplinary or even true interdisciplinary approach of IPR
issues in genetics/diagnostics therefore even possible? It is clear that if
left only to geneticists or lawyers, we may end up as already said: with
something quite useless. ‘To be aware of one’s shortcomings, is the first
step towards improving oneself,’ as Socrates used to say. Therefore,
combining the expertise, even in a ‘multidisciplinary’ approach, will
create a more holistic approach, which will be much more useful to all
parties involved and to the aim of the collaboration.
One has to keep in mind, however, that even if multi- and interdisci-
plinarity is very trendy in our universities, it may be less obvious when
one applies for funding. We all know examples, where multidisciplinary
projects have not received the expected financial support. The quanti-
tative scientist will have judged that the project is too descriptive, while
the qualitative scientists will have found it poorly written or not under-
standable.
In conclusion, I guess there is only one way in which this collab-
oration could become truly interdisciplinary and that is by becoming
a discipline itself. If it succeeds, it might even solve the problem of its
research funding, make even its own tenure and promotion decisions.
Other examples of such integrations do exist: neuroscience, biomedical
engineering and bioinformatics, to cite only a few examples, have been
successful in this, here or in other places in the world. Whether the
academic authorities will follow in this particular topic, I would not be
too optimistic.
xxviii Foreword

In any case, I would like to congratulate all contributors to the pres�

ent book in trying to talk to each other and even to try to understand
each other’s language, and to grow into a multidisciplinary approach.
Of course my congratulations also go to the organiser of the workshop
and the editor of the present volume, Geertrui Van Overwalle, for being
the necessary catalyst in this process.

j e a n - jacqu es cassi m a n
 Abbreviations

3GPP 3rd Generation Partnership Project

ACMG American College of Medical Genetics
AD Alzheimer Disease
AFLP Amplified Fragment Length Polymorphism
AFJ2 Second Amended Final Judgment
AI artificial intelligence
AIDS Acquired Immunodeficiency Syndrome
AIPPI Association Internationale pour la Protection de la
Propriété Industrielle
ALRC Australian Law Reform Commission
ASCAP American Society of Composers, Authors and
Publishers
ASTP Association of European Science & Technology
Transfer Professionals
AUTM Association of University Technology Managers
BCLC Breast Cancer Linkage Consortium
BSD Berkeley Software Distribution
BIEM Bureau International des Sociétés Gérant les
Droits d’Enregistrement et de Reproduction
Mécanique
Biotechnology
Directive EU Directive on the Legal Protection of
Biotechnological Inventions, 1998
BiOS Biological Innovation for Open Society
BMI Broadcast Music, Inc.
BRCA Familial Breast and Ovarian Cancer (gene)
BRT Belgische Radio- en Televisieomroep
BSD Berkeley Software Distribution
BUMA Dutch Association for Performance Rights
B2B business-to-business

xxix
xxx List of abbreviations

CAMBIA Centre for Applications of Molecular Biology in

International Agriculture
CBD Convention on Biological Diversity
CC Creative Commons
CCS Copyright Collection Societies
cDNA complementary DNA
CF Cystic Fibrosis (Mucoviscidosis in some
languages)
CFTR Cystic Fibrosis Transmembrane Conductance
Regulator (gene and protein)
CGIAR Consultative Group on International Agricultural
Research
CH clearinghouse
CIMMYT International Maize and Wheat Improvement
Centre
CISAC Confédération Internationale des Sociétés
d’Auteurs et Compositeurs
CJ Court of Justice (EU)
CMM (detection) Chemical Mismatch (detection)
CMT-1A Charcot-Marie-Tooth disease, type 1A
CPC Community Patent Convention
CRO Collective Rights Organisation
CRUK Cancer Research UK
CSCE Conformation Sensitive Capillary Electrophoresis
DArT Diversity Array Technology
DG Directorate General
DGGE Denaturing-Gradient Gel Electrophoresis
DH Department of Health (UK)
DHPLC Denaturing High-Pressure Liquid
Chromatography
DMD Duchenne Muscular Dystrophy (disease, protein
and gene)
DNA Desoxyribonucleic Acid
DOJ Department of Justice (US)
DRM Digital Rights Management
EBI European Center for BioInformatics
EBoA Enlarged Board of Appeal (EPO)
ECJ European Court of Justice
EC Treaty Treaty of the European Communities
EEA European Economic Area
EGE European Group on Ethics in Science and New
Technologies
 List of abbreviations xxxi

EMD Enzymatic Mismatch Detection

EMEA European Agency for the Evaluation of Medicinal
Products
EPC European Patent Convention, 1973
EPIPAGRI European Collective Management of Public
Intellectual Property for Agricultural
Biotechnologies
epo Erythropoietin
EPO European Patent Office
ESGH European Society of Human Genetics
EST Expressed Site Tag
EU European Union
FAO Food and Agriculture Organization
FDA Food and Drug Administration (US)
FIPC French Intellectual Property Code
FMF familial Mediterranean fever
FRAND Fair Reasonable and Non-Discriminatory
FS free software
FSF Free Software Foundation
FTC Federal Trade Commission (US)
FTO freedom to operate
GATT General Agreement on Tariffs and Trade (WTO)
GBIF Global Biodiversity Information Facility
GBS Global Bio-Collecting Society
GCP Good Clinical Practice
GEMA German Gesellschaft für musikalische
Aufführungs – und mechanische
Vervielfältigungsrechte (Germany)
GFP Green Fluorescent Protein
GM genetically modified
GMS Genetic Microsystems
GNU recursive acronym for ‘GNU’s Not Unix’, the
name for the complete Unix-compatible operating
system
GNU/Linux Linux kernel (see ‘Linux’) together with other
operating system elements supplied by the GNU-
project
GPL General Public License
GRDC Grains Research and Development Corporation
Guidelines EPO Guidelines for Examination in the European
Patent Office
GUS glucuronidase
xxxii List of abbreviations

GVL Gesellschaft zur Verwertung von

Leistungsschutzrechten (Germany)
GWAS Genome-Wide Association Studies
HART Homologous Allelic Recombination (or
Replacement) Technologies
HBV Hepatitis B virus
HCV Hepatitis C virus
HD Huntington Disease
HGS Human Genome Sciences
HH Hereditary Hemochromatosis
HIV Human Immunodeficiency Virus
HKU Hong Kong University
HLA Human Leukocyte Antigens
HLA tissue typing Examination of Human Leukocyte Antigens
(HLA) in a patient. Tissue typing is done for
all donors and recipients in transplantation to
help match the donor and recipient. Human
Leukocyte€Antigens
HNPCC Hereditary Non-Polyposis Colorectal Cancer
HUGO Human Genome Organisation
HTS High-throughput screening
IBM International Business Machines Corporation
ICS incomplete contract structure
ICT information and communication technology
IFPI International Federation of the Phonographic
Industry
IND Investigation New Drug application
INSDC International Nucleotide Sequence Database
Collaboration (more commonly known as
GenBank)
INPI Institut National de la Propriété Industrielle
(France)
IP intellectual property
IP Australia Australian Intellectual Property Office
IPRs intellectual property rights
IT information technology
ITPRGFA International Treaty on Plant Genetic Resources
for Food and Agriculture
JASRAC Japanese Society for Rights of Authors, Composers
and Publishers
 List of abbreviations xxxiii

LINUX contraction of ‘Linus’ Minix’, the name the

developer (Linus Torvald) chose to refer to the
kernel of the GNU/Linux operating system
MCPS Mechanical Copyrights Protection Society
MLI Molecular Libraries Initiative
MLS Multilateral System
MRI magnetic resonance imaging
mRNA messenger RNA
MGH Michigan General Hospital
MIT Massachusetts Institute of Technology
MMR mismatch repair
MPEG Moving Picture Experts Group
MPEG LA MPEG Licensing Authority
MS mass spectrometry
MTA material transfer agreement
NAS National Academy of Sciences
NCBI National Center for BioInformatics
NCE new chemical entity
NDA new drug application
NHS National Health Services (UK)
NIH National Institutes of Health (US)
NOS Nederlandse Omroep Stichting (the Netherlands)
NSF National Science Foundation
OECD Organization for Economic Co-operation and
Development
OJ EPO Official Journal of the European Patent Office
OJ Official Journal of the European Communities
OSD open source definition
OSFS open source free software
PAHO Pan American Health Organization
PCR Polymerase Chain Reaction
PCT Patent Cooperation Treaty
PGD Pre-implantation Genetic Diagnosis
PIPRA Public Intellectual Property Resource for
Agriculture
PKU Phenylketonuria
PLoS Public Library of Science
PLC Patenting and Licensing Committee (ESHG)
PLT Patent Law Treaty
PPPC Public and Professional Policy Committee
(ESHG)
xxxiv List of abbreviations

PRCCH Patent Royalty Collection Clearinghouse

PRS Performing Rights Society (UK)
PSTC Predictive Safety Testing Consortium
Pty Ltd/PL Proprietary Limited
RAND Reasonable And Non-Discriminatory
RDF Resource Description Framework
RFLP Restriction Fragment Length Polymorphism
RNA ribonucleic acid
SABAM Société Belge des Auteurs, Compositeurs et
Éditeurs (Belgium)
SACEM Société des Auteurs, Compositeurs et Éditeurs de
Musique (France)
SARS Severe Acute Respiratory Syndrome
SCA1 Spinocerebellar Ataxia, type 1
SDNY United States District Court of the Southern
District of New York
SSCP (analysis) Single-Strand Conformation Polymorphism
(analysis)
SENA Stichting ter Exploitatie van Naburige Rechten
(the Netherlands)
SESAC Society of European Stage Authors & Composers
SIR Statutory Invention Registration
SLA simple letter agreement
SME small- and medium-sized enterprise
SMTA standard material transfer agreement
SNP single nucleotide polymorphism
SSR simple sequence repeat
STEMRA Dutch foundation for mechanical reproduction
rights (the Netherlands)
TBoA Technical Board of Appeal
TIGR The Institute for Genome Research
TKT Transkaryotic Therapeutics (company name)
TRIPs Agreement on Trade-Related Aspects of
Intellectual Property Rights, 1995
TTBER Commission Block Exemption Regulation (EC)
No. 772/2004 on Technology Transfer Agreements
(EU)
TTG Transfer Technology Guidelines (EU)
UBMTA Uniform Biological Material Transfer Agreement
UK United Kingdom
UN United Nations
 List of abbreviations xxxv

UPA Utility Patent Act

US United States
USPTO United States Patent and Trademark Office
VC venture capital
WBCSD World Business Council for Sustainable
Development
WFCC World Federation of Culture Collections
WHO World Health Organization
WIPO World Intellectual Property Organization
WTO World Trade Organisation
Part I

Patent pools
1 Patent pooling for gene-based
diagnostic€testing
Conceptual framework*

Birgit Verbeure

1.1 Introduction
The presence of a patent thicket in a certain technology inevitably leads
to a high number of licenses required to gain access to the patented
technology. Consequently, this may result in the accumulation of roy-
alties to be paid (royalty stacking). Such a situation may cause hin-
drance of access to and subsequent under-use of the technology, which
is described in literature as the anticommons effect.1 When access and
use to a certain technology are hindered by the existence of multiple
patents, held by multiple patent owners (a patent thicket), 2 a patent pool
might be a useful model to facilitate access.
Patent thickets have arisen in technical fields other than the genetic
area and patent pools have emerged to deal with overlapping patents for
a long time.3 One of the first patent pools was formed in 1856, by sewing
machine manufacturers Grover, Baker, Singer, Wheeler and Wilson, all
accusing the others of patent infringement. They met in Albany, New
York to pursue their suits. Orlando B. Potter, a lawyer and president of
the Grover and Baker Company, proposed that, rather than sue their
profits out of existence, they pool their patents. In 1917, an aircraft pool

*
╇ The present paper builds further on a previous publication by the author: Verbeure B.,
van Zimmeren E., Matthijs G., and Van Overwalle G., ‘Patent pools and diagnostic
testing’, 24(3) Trends in Biotechnology, 2006, 115–20.
1
╇ Heller, M.A. and Eisenberg, R.S., ‘Can patents deter innovation? The anticommons
in biomedical research’, 280 Science, 1998, 698–701.
2
╇ Shapiro defined patent thicket as an overlapping set of patent rights requiring that
those seeking to commercialize new technology need to obtain licenses from multiple
patentees. Shapiro, C. (2001) ‘Navigating the Patent Thicket: Cross Licenses, Patent
Pools and Standard Setting’, in Jaffe, E., Lerner, J. and Stern, S. (eds), Innovation
Policy and the Economy, volume I, MIT Press, 119–150.
3
╇ Merges, R. (2001) ‘Institutions for intellectual property transactions: the case of patent
pools’, in Dreyfuss, R., Leenheer Zimmerman, D. and First, H. (eds), Expanding the
Boundaries of Intellectual Property Oxford University Press, 123–166.

3
4 Birgit Verbeure

was privately formed encompassing almost all aircraft manufacturers,4

which was crucial to the US government entering World War I. In the
late 1990s several patent pools were formed in the ICT branch starting
with the MPEG-2 pool in 1997 for inventions relating to the MPEG-2
standard5 with others to follow.6,â•›7,â•›8
According to a recent study under the auspices of NAS’s Science,
Technology and Economic Policy Board and Committee on Science,
Technology and Law,9 there is no real or substantial evidence for a
patent thicket or a patent blocking problem in the field of genetics
at present. However, it should be noted that the report is strongly
focused on the influence of IP on research activities. At the same
time, one is cautioned about the future: this lack of evidence is asso-
ciated with a general lack of awareness or concern among the tech-
nology users on the one hand, and growing assertiveness of patent
holders in asserting their rights on the other hand. Similar findings
resulted from the European PATGEN project.10 Nevertheless, cases
of restrictive licensing or refusals to license practices have generated
widespread controversy and disapproval because of the potential
adverse effects on public health. Such studies were mainly reporting
on problems relating to gene-based diagnostic testing, the reason why
we further investigate to what extent a patent pool could alleviate the
pains in this field.
Although there seems to be little evidence to suggest that there is an
anticommons problem in the biotechnology industry in general, and
in the genetics in particular, the biotech industry does have several
characteristics that make it fertile ground for an anticommons. For
example, a proliferation of patents held by a large number of market
participants and an occasional tendency by companies to accumulate

╇ 4
╇ Dykman, H.T., ‘Patent licensing within the Manufacturer’s Aircraft Association’, 46
Journal of the Patent Office Society, 1964, 646.
╇ 5
╇ Klein, J.I. ‘Business review letter to Gerrard R. Beeney regarding MPEG-2’, 1997,
Department of Justice, Antitrust division.
╇ 6
╇ Klein, J.I. ‘Business review letter to Gerrard R. Beeney regarding licensing of DVD
technology’, 1998, Department of Justice, Antitrust division.
╇ 7
╇ Klein, J.I. ‘Business review letter to Carey R. Ramos regarding licensing of DVD
technology’, 1999, Department of Justice, Antitrust division.
╇ 8
╇ James, C.A. ‘Business review letter to Ky P. Ewing regarding 3G platform’ 2002,
Department of Justice, Antitrust division.
╇ 9
╇ National Research Council of the National Academies, ‘Reaping the benefits of
�genomic and proteomic research: intellectual property rights, innovation, and public
health’, 2005, National Academies Press.
10
╇ Hopkins, M.M., Mahdi, S., Thomas, S.M., Patel P. ‘The patenting of human DNA:
global trends in public and private sector activity (The PATGEN Project)’, Report on
a European Commission’s 6th Framework programme 2006.
 Patent pooling: conceptual framework 5

IP could indicate the emergence of a patent thicket and/or issues to

gain access to the technology. Like in ICT, the biotech industry is
characterized by rapid growth, a high level of complexity and a ten-
dency to attach high importance and value to IP. But contrary to the
IT industry, the attitude in biotech is much more protective. It is the
aim of this chapter to review patent pooling as a concept (1.2) and to
assess to what extent the concept could offer a facilitating effect on
the licensing of IP for gene-based technology, in particular genetic
testing (1.3).

1.2 Patent pools: the concept

Introduction
Definition
In order to overcome an anticommons effect, a patent pool provides
for an agreement between two or more patent owners to license one or
more of their patents to one another, and together as a package to third
parties. As illustrated in Figure 1.1 two major licensing techniques are
involved in the patent pool setup. On the one hand, a multiparty agree-
ment is set up between the patent owners who license their patents as
a package to one another and form a pool (lines within circle). On the
other hand, a bilateral license agreement, usually in the form of a stand-
ard out-licensing agreement, provides for access of third parties to that
package of patents (lines outside circle). As a consequence, a patent
pool allows interested parties to gather in one instance all the necessary
tools to practice a certain technology, i.e. “all-in-one license”, rather
than obtaining licenses from each patent owner individually.

NO POOL
NO POOL PATENT POOL
PATENT POOL

P1
P 1 L1
L1 L1
L1
P1
P1

P2
P 2 L2
L2 P2
P 2
L2
L2

P3
P 3 L3
L3 P3
P 3 L3
L3
P4
P4

P4
P 4 L4
L4 L4
L4

Figure 1.1 Comparative illustration of the different licenses needed

in the absence or presence of a patent pool.
6 Birgit Verbeure

Motivation
Over the last hundred years, the reasons for setting up a patent pool
have changed considerably. Roughly, two periods can be distinguished.
From the introduction of the first patent pools in late nineteenth cen-
tury and mainly during the first two decades of the twentieth century,
patent pools were market based. They were set up to clear blocking
patent positions and to cease patent hostilities, often after government
intervention. Also the creation of a market division among horizon-
tal competitors, naked price-fixing and other anti-competitive goals
incensed some of the early patent pools. However, due to growing con-
cern for and criticism of such uncompetitive behaviour, apart from
some exceptions, no new patent pools were formed between approxi-
mately 1920 and the 1990s.11
Nevertheless, in the 1990s, the patent pool model was picked up
again but the incentives for pool formation differed considerably. At
this point in history, patent pools were typically designed to deal with
substantial patent thickets for technologies that were essential to one
and the same technical standard, which led to standard-based patent
pools. Standards are technical specifications relating to a product or an
operation, which are recognized by a large number of manufacturers
and users.12 Typically, such standards-driven patent pools are the ones
we know from the ICT sector which set off with the MPEG-2 patent
pool. This new approach to patent pooling shed a different light on the
possible impact of patent pools on competition. By bringing together
essential patents in a one-package license, the access to technologies
essential to implement a standard was facilitated, bringing strong pro-
competitive effects in the balance. As can be read in the Guidelines
issued by the US Department of Justice and US Federal Trade
Commission (FTC) in 1995,13 it was recognized that cross-licensing
arrangements and patent pooling “may provide pro-competitive beneÂ�
fits by �integrating �complementary technologies, reducing transaction

11
╇ This growing concern with regard to anticompetitive licensing conduct eventually led
to a rigid approach of the US Department of Justice to licensing arrangements, iden-
tifying particular practices that it considered to be forbidden as the “Nine No-Nos”
of intellectual property licensing. See Bruce B. Wilson, Deputy Assistant Attorney
General, ‘Remarks before the Fourth New England Antitrust Conference, Patent
and Know-How License Agreements: Field of Use, Territorial, Price and Quantity
Restrictions’, 1970.
12
╇ European Commission Communication COM (92) 445 final of 27 October 1992 on
Intellectual Property Rights and Standardisation.
13
╇ US Department of Justice and Federal Trade Commission (1995) ‘Antitrust
Guidelines for the Licensing of Intellectual Property’.
 Patent pooling: conceptual framework 7

costs, clearing blocking positions and avoiding costly infringement

litigation.”14

Set-up
The establishment of a patent pool is a long, complex, multi-step pro-
cess. In view of the varied issues and interests at stake, expertise and
joint collaboration of highly qualified patent attorneys, technical experts
in the relevant field and legal advisors both in the field of patent law and
competition law are required.
A patent pool may be and usually is formed upon the initiative of
the patentees, acting as shareholders of the pool and as financiers of
the licensing entity. Consequently, to a certain extent the patentees
preserve authority over the licensing conditions. Third-party licens-
ing may occur directly by patentees to licensees, e.g. by appointment
of one of the partners of the pool. Alternatively, third-party licenses
may be administered indirectly through a new entity specifically
set up for the pool �administration, a separate independent licensing
authority.15,â•›16,â•›17,â•›18
The first situation will generally apply to patent pools with a rela-
tively limited number of participating patent holders. In such organiza-
tions whereby one of the patent owners manages the patent pool, some
safeguards with respect to its independence and confidentiality of busi-
ness information should clearly be built in. The administration of larger
pools puts a large burden on the administering body and will in general
be transferred to an independent licensing authority.
Based on the nature of the patent pool initiators and the complexity
of the pool’s structural organization, three types of patent pools can
be distinguished.19 “Joint licensing schemes” are initiated by a group

14
╇ Ibid. §5.5
15
╇ Shapiro, C., (2001) ‘Navigating the patent thicket: cross licenses, patent pools and
standard setting’, in Jaffe, E., Lerner, J. and Stern, S. (eds), Innovation Policy and the
Economy, volume I, MIT Press, 119–150.
16
╇����������������������������������������������������������������������������������� Clark, J. ‘Patent Pools: a Solution to the Problem of Access in Biotechnology pat-
ents?’ in a White Paper commissioned by Q. Todd Dickinson, the Under Secretary of
Commerce for Intellectual Property and Director of the US Patent and Trademark
Office, 2000.
17
╇ Klein, J.I., (1997) ‘Cross licensing and antitrust law’, An Address to the American
Intellectual Property Law Association May 2, 1997.
18
╇ Merges, R. (2001) ‘Institutions for intellectual property transactions: the case of
patent pools’, in Dreyfuss, R., Zimmerman, D.L. and First, H. (eds), Expanding the
Boundaries of Intellectual Property, Oxford University Press, 123–166.
19
╇ Bekkers, R., Iversen, E., Blind, K. ‘Patent pools and non-assertion agreements:
coordination mechanisms for multi-party IPR holders in standardization’, paper for
the EASST 2006 Conference, Lausanne, Switzerland, 23–26 August 2006.
8 Birgit Verbeure

of (usually larger) licensors of a particular technology (or standard).

One of them may act as an agent for the joint licensing contract. Most
of these pools are eventually open to any holder of essential IPR to the
standard in question. Nevertheless, they started as an activity of a small
group.
“Patent pools with a licensing administrator” start off with an open
call for essential patents for a certain standard by an independent body.
Subsequently, the independent licensing administrator has a patent
evaluation carried out (preferably by an independent third party) to
determine essentiality to the standard in question. A priori, the licen-
sors that decide to join such a pool do not know who the other licensors
will be that will become a member of the pool. Well-known examples of
such independent bodies acting as licensing authorities/administrators
for several patent pools covering a diversity of technical standards at the
same time are MPEG LA20 or ViaLicensing.21 The licensing adminis-
trator sets, in dialogue with the licensors, the royalty rate for the pool,
and collects the royalties and redistributes them given a pre-agreed
scheme.
In the case of “patent platforms”, an organizational approach is
adopted that deals flexible with multiple technologies (standards) and
multiple product groups (employing one or more patents that are essen�
tial to a certain standard). It also aims to be more flexible towards the
actual agreements between licensors and licensees. In the patent plat-
form, there is one overall umbrella organization, as well as multiple
entities which each develop licensing programmes for specific stan�
dards. The aim is to have a standard offer (bundle) available. However,
within the context of the patent platform, licensors and licensees may
also agree upon other arrangements, possibly involving cross licens-
ing, licensing of non-essential patents, and so on. To date, the 3rd
Generation Partnership Project (3GPP)22 is the only example of such
an approach. One could argue that there is little or no difference
between the 3G platform model and an organization like MPEG LA
or Vialicensing on the basis of organization or administration. We do
however want to stress the importance of a particular feature of this
third model. The platform deals with partly integrating technologies in
a flexible approach tailored to the particular needs of different licen-
sees. Licensing administrators dealing with multiple pools may adopt a
more€or less flexible approach within one patent pool, but will still treat
these different pools independently. As will be discussed in more detail

20
╇ www.mpegla.com 21
╇ www.vialicensing.com ╇ www.3g.org
22
 Patent pooling: conceptual framework 9

in part 1.3 of this chapter, it is exactly the flexibility within seemingly a

single technology that justifies its separate classification, especially for
the purpose of this paper.

Benefits and risks

From the experience in ICT, we learn that patent pools may have sig-
nificant benefits which make for a pro-competitive counterweight for
possible anti-competitive effects, which largely account for the critical
opinions with respect to the patent pool model. A major beneficial
effect to begin with is the elimination of stacking licenses. The licens-
ing transaction costs are reduced by the introduction of a system of
“all-Â�in-one licensing” for non-member licensees instead of having to
negotiate and acquire separate licenses directly from each of the patent
owners individually (see Figure 1.1). At the darker/down side of this
model, one has at the same time to take into account that the initial
cost of setting up and negotiating a pool agreement will often be high.
Another benefit is a decrease in patent litigation and its associated
high cost. A patent pool also leads to the institutionalized exchange
of technical information not covered by patents through a mechanism
for sharing technical information relating to the patented technology,
which would otherwise be kept as a trade secret. This is reflected by
an exchange of know-how brought along by the set-up of a patent pool,
thereby further facilitating innovation and efficient use of resources.
However, from competition law point of view, such exchange should be
limited to technical information only. The exchange should not extent
to exchange of business information between competitors which risks
resulting in cartel formation.
Patent pools may also offer an interesting instrument for government
policy, in the sense that it is better to encourage companies to establish
patent pools rather than for example to force them into a compulsory
licensing scheme. However, one should not overlook that it was exactly
those early patent pools created after government intervention that
raised antitrust concerns. A major prerequisite for establishing patent
pools is the voluntary participation of all patent holders, whereas the
compulsory licensing mechanism is exactly intended for creating access
in a situation where patent holders do not voluntarily wish to enter into
(reasonable) licensing negotiations. In the past however, “non-voluntary
patent pools” have been set up, i.e. patent pools initiated on the basis
of government intervention. An early example of such non-voluntary
patent pool was the airplane patent pool created by the US Government
10 Birgit Verbeure

in 1917.23 More recently, attempts were made in the biomedical field to

create access to HIV drugs for developing countries by setting up the
“Essential Patent Pool for AIDS”.24
One should be wary of some additional potential risks as well. Patent
pools might shield invalid patents25 and entail the risk of inequitable
remunerations although expert valuation could settle disagreements on
the value of the patents.26 The major criticism is the danger of covering
for a cartel and subsequent anti-competitive effects.27,â•›28,â•›29

Economics
As originally studied by Cournot back in 1838,30 the creation of a patent
pool is typically attractive when at least two entities hold blocking pat-
ents. Cournot’s theory of the complements nicely illustrates that the
inefficiency associated with multiple blocking positions can be elimi-
nated by pooling patents and joint licensing. When individual patentees
join forces and offer their IP in a single license as a package, the price of
such package license is less then the cumulative price of the individual
components when priced separately. Both the patentees and licensees
fare better under such a regime. Because of the availability of a license

23
╇ As the US contemplated the needs of entering and fighting in World War I, the
problems associated with the development, manufacture, supply availability, innov-
ation and cost of airplanes were brought to the forefront. In the early days of avi-
ation, the Wright brothers and Curtiss company, whilst also litigating each other
on their patents, retarded innovation in the aircraft industry. The National advisory
committee for aeronautics was created which recommended “the formation of the
Aircraft Manufacturers Association among all aircraft manufacturers to manage a
patent pool”. The US Congress passed a law to enable the Secretary of War and the
Secretary of the Navy to secure by purchase, condemnation, donation or otherwise
essential patents as they may consid er necessary to the development and manufac-
ture of aircraft in the US for governmental and civil purposes. Eventually, the AMA’s
patent pool was created. The level of allocation of royalties was forced upon the patent
owners under threat of the government to take over the patents.
24
╇ See www.essentialinventions.org/docs/eppa.
25
╇ Aoki, R. ‘The Consortium Standard and Patent Pools’ 55(4) The Economic Review,
2004, 345–356.
26
╇ Bekkers et al. ‘Patent pools and non-assertion agreements’.
27
╇ Aoki, R. ‘The Consortium Standard and Patent Pools’ 55(4) The Economic Review,
2004, 345–356.
28
╇ Versaevel, B., Dequiedt, V. ‘Patent Pools and the Dynamic Incentives to R&D’ Cahiers
de Recherche, Working Papers No 2009/6, available at www.em-lyon.com/ressources/ge/
documents/publications/wp/2006-09.pdf
29
╇ See note 23, above.
30
╇������������������������������������������������������������������������������������� For a brief description of Cournot’s original work on complements, and modern exten-
sions, see Shapiro, C. (1989), ‘Theories of Oligopoly Behavior’, in Schmalensee R.
and Willig, R. (eds.), Handbook of Industrial Organization, Elsevier Science Publishers,
330–414, at 339.
 Patent pooling: conceptual framework 11

that covers all, there is a higher chance on effective marketing of market

products which in turn results in higher revenue for the �patentees on
their IP. At the other side, since the package license is available at a more
reasonable price, the public fares better by having a market product
available with a lower royalty burden. More recent economic modelling
studies on the patent pool concept, confirm Cournot’s early findings.31
More recently, more complex studies have been conducted to evalu-
ate the effect of the formation of a patent pool on welfare, thereby
aiming at better understanding which characteristics of patent pool
arrangements lead to pro-competitive effects, and therefore indicating
which patent pools should be authorized by the regulator. A clear out-
come of these studies highlights the importance of the essentiality of
the patents included in the pool. The foregoing analyses evaluate the
impact of a pool on welfare after the formation of that pool, i.e. ex post
perspective.32
A new approach to the economic study of the patent pool model
looks at the perspective before the formation of a patent pool and
reveals additional interesting observations. This ex ante approach 33 led
to the conclusion that the perspective of joining a patent pool would
have a positive impact on R&D activity, i.e. higher R&D investment
and enhanced speed of R&D. In other words, the prospect of patent
pooling has an innovation stimulating effect. More in particular, it
is perceived as crucial to be part of the pool initiators. However, this
phenomenon gives rise to the observation of two distortions. On the
one hand there is the risk for pre-pool overinvestment in order to be
participant in the pool formation. But on the other hand, there may
well be a risk for underinvestment after pool formation. Hence there
might be a negative effect on further innovation once the pool has
been set up.
This theoretical determination of the incentives effect of the pros�
pect of a patent pool is also reflected in the setup of patent pools in a
context of cooperative standard setting. Ironically, exactly the role of
standard setting bodies in the set-up of patent pools as such may raise
anti-trust concerns. Standard setting bodies almost always coordi�nate
standard setting by competitive or potentially competitive business

31
╇ Lerner, Josh and Tirole, Jean, ‘Efficient Patent Pools’ (5 August 2002). Available at
SSRN: http://ssrn.com/abstract-322000.
32
╇ Aoki, R. ‘The consortium standard and patent pools’ 55(4) The Economic Review,
2004, 345–356.
33
╇ Versaevel, B., Dequiedt, V. ‘Patent Pools and the Dynamic Incentives to R&D’,
Cahiers de Recherche, Working Papers No 2009/6, available at www.em-lyon.com/
ressources/ge/documents/publications/wp/2006-09.pdf.
12 Birgit Verbeure

entities whereas true competition is considered to be best encouraged

if business decisions by the market players are made independent from
each other. The risk of improper collusion in a standard setting process
is therefore never far away. Such improper collusion where business
decisions are made by competitors working together may be reflected
in price fixing, market division and allocation or joint market mon-
opolization, product restrictions etc.34,â•›35,â•›36 Careful assessment of the
impact of the formation of a pool is therefore needed. The possible
pro-competitive effects of a patent pool once the pool has been set up
counterbalance these fears. By clearing the intellectual property rights
(IPRs) covering a certain technology, the facilitated access to the tech-
nology may open up the technology for wide-spread use and for further
research and innovation.

Legal aspects37
Applicable law
As indicated, the US antitrust agencies but also the European
Commission as well as the Japanese Fair Trade Commission have estab-
lished guidelines in an attempt to deal with potential anti-competitive
effects of (multiparty) licensing agreements. In the US, the Federal
Trade Commission (FTC) and Antitrust Division of the Department
of Justice (DOJ) have developed Antitrust Guidelines for the Licensing of
Intellectual Property (IP Licensing Guidelines). The principles laid down
in the IP Licensing Guidelines cover both the multiparty licensing
agreements to set up a patent pool and bilateral licensing agreements
between the pool and third parties. Upon request, the federal anti-
trust agencies may review both types of licensing agreements. The IP
Licensing Guidelines specifically refer to the potential pro-competitive
effects of patent pool agreements “by integrating complementary tech-
nologies, reducing transaction costs, clearing blocking positions, and
avoiding costly infringement litigation”.

34
╇ Shapiro, C. ‘Setting Compatibility Standards: Cooperation or Collusion?’, in
Dreyfuss, R., Zimmerman, D.L., First, H. (eds), Expanding the Boundaries of
Intellectual Property – Innovation Policy for the Knowledge Society, Oxford University
Press, 2001, 81–102.
35
╇ Wellford, H.B. ‘Antitrust issues in standard setting’, address at the 2nd Annual
Seminar on IT Standardization and Intellectual Property China, Electronics
Standardization Institute Beijing, China, 29 March, 2007.
36
╇ Lemley, Mark A., ‘Intellectual Property Rights and Standard-Setting Organizations’,
90 California Law Review, 2002, 1889–1980.
37
╇ With special thanks to Esther van Zimmeren on whose work this section is based,
manuscript on file with the author.
 Patent pooling: conceptual framework 13

In the European Union the major competition rules related to tech-

nology licensing are laid down in the Commission Block Exemption
Regulation (EC) No. 772/2004 on Technology Transfer Agreements
(TTBER).38 However, the TTBER only deals with bilateral agree-
ments, not with multiparty agreements like patent pools. Nevertheless,
the licensing agreements between a patent pool and a third party are
seen as regular license agreements which may fall within the scope of
the TTBER. To further clarify the scope and application of this regu-
lation, supplementary Transfer Technology Guidelines (TTG)39 were
established in April 2004. Unlike the TTBER, the TTG does provide
guiding principles for the set-up of a multiparty licensing agreement to
set up a patent pool. It is noteworthy to mention that the TTG do not
use the term “IP pools” or “patent pools” but “technology pools’. Such
technology pools are defined as “arrangements whereby two or more
parties assemble a package of technology which is licensed not only to
contributors to the pool but also to third parties” (TTG 210). A tech-
nology pool can thus not only encompass patents, but also copyrights,
trademarks and the like.

Conditions
Close examination of foregoing guidelines, regulations and related deci-
sions provides valuable information on the attitude of US and European
authorities towards patent pools. In short, patent pools should avoid
causing anti-competitive restraints and will most likely be accepted if
they meet the following conditions.40
Evidently, the patents taken up by the pool should be valid. A patent
is valid from the date of grant until the date of expiration defined by
law, which usually is twenty years from the date of filing, provided the
maintenance fees are being paid.
The technologies covered by the patents included in a patent pool
should be essential and complementary. A technology or patent is deemed
to be essential if the technology in question constitutes a necessary
part of the package of technologies for the purposes of producing the
product(s) or carrying out the process(es) to which the pool relates,

38
╇ Commission Regulation (EC) No. 772/2004 of 27 April 2004 on the application of
Article 81 (3) of the Treaty to categories of technology transfer agreements, OJ 2004
No L123, 11. This Regulation replaces Commission Regulation (EC) No. 240/96 of
31 January 1996 on the application of Article 85 (3) of the Treaty to certain categories
of technology transfer agreements, OJ 1996 L31, 2.
39
╇������������������������������������������������������������������������������������ Commission Guidelines on the application of Article 81 of the EC Treaty to technol-
ogy transfer agreements OJ, 2004 No. C101, 2.
40
╇ Verbeure, B., van Zimmeren, E., Matthijs, G. and Van Overwalle, G., ‘Patent pools
and diagnostic testing’, 24(3) Trends Biotechnology, 2006, 115–20.
14 Birgit Verbeure

and, if there are no substitutes for that technology inside or �outside the
pool.41 Hence, provided a technology meets the essentiality require-
ment, that technology is necessarily also complementary to the other
technologies included in the pool. In the currently established patent
pools, essentiality is usually measured against a standard. In order to
guarantee validity of the patents and essentiality of the pooled technol-
ogy, validity of the patents and the weight of each of these patents, a
system of independent patent expert evaluation is required.
Regarding royalties paid by third-party licensees, undertakings set-
ting up a pool are in principle free to negotiate and fix royalties for
the technology package and each technology’s share of the royalties.
These royalties paid to the pool by the licensees as well as other licens-
ing terms should be fair, reasonable and non-discriminatory (the so-called
“FRAND-terms”) and licenses granted by the pool should be non-
exclusive. A license is non-exclusive when one or more licensees are
granted the right to use the licensed technology covered by the patent(s)
during the term of the license and when the licensor retains the right to
use the licensed technology and associated patent(s) as well.
As for the patent pool agreement, licenses from patent owners to the pool
should also be non-exclusive. This leaves the opportunity for licensing
of the patent independently from the pool, e.g. when a licensee is not
interested in a full pool package, or for the licensing of a technology for
an application not envisaged in the pool. At the same time, royalties
paid by licensees to the patent pool should be distributed amongst the
licensors according to an agreed royalty allocation formula set forth in
the patent pool arrangement.
With respect to further innovation on the basis of the pooled technol-
ogy, a licensee may be obliged to grant the licensor non-exclusive licenses
for improvements of the licensed technology. Such clause in the license
agreement is also referred to as a “grant back” provision. This should
be limited to essential patents and be settled on reasonable terms in
order not to discourage further innovation. However, licensees are free
to develop and use alternative technologies.
Safeguards for sensitive business information should be provided.
Competitively sensitive business information on the licensee is safe-
guarded in case auditing mechanisms for the management of the royal-
ties are established.
And finally, it has been suggested that an independent and therefore
neutral dispute resolution mechanism is desirable in the agreements set-
ting up the pool.

╇ Commission Guidelines on Technology Transfer Agreements (TTG).

41
 Patent pooling: conceptual framework 15

1.3 Patent pools for gene-based diagnostics?

Introduction
Unlike gene-based drug development, the development of a gene-based
diagnostic test based on the fundamental finding of the link between
a particular nucleic acid sequence and the aetiology of a disease does
not involve the same enormous investment. A principal argument for
patenting biomedical inventions is the fact that typically, post-invention
development costs far exceed pre-invention research expenditures, and
firms are unable to make this substantial investment without protection
from competition. Patents therefore facilitate transfer of technology to
and within the private sector by providing exclusive rights to preserve
the profit incentives of innovating firms. Additionally, for drug devel-
opment based on genomic knowledge one could envisage parallel but
different routes to obtain a drug. In other words, in contrast to diagnos-
tic testing, for drug development there is still some room for inventing
around. The justification of a right to exclude others from exploitation
of the technology seems therefore less obvious and acceptable with
regard to gene-based diagnostic testing as for drug development.
Currently, more than a thousand genetic diseases can be diagnosed
through available tests. Although some of the associated genes are
free of patents, most are not. According to Jensen and Murray 20%
of human genes are explicitly claimed as US IP. Within this group of
genes, specific regions are identified as “hot spots” of heavy patent
activity, usually with a one-gene-many-patents scenario.42 A European
study identified 15,000 patent families seeking to claim human DNA
patents between 1980 and 2003, of which just fewer than 6,000 con-
tained one or more patents granted at the main patent offices (United
States Patent and Trademark Office (USPTO); European Patent Office
(EPO); Japanese Patent Office (JPO)) by 2005. Remarkably, significant
regional differences in DNA patenting activity were observed: 94% of
these families contain a USPTO patent grant compared to only 13%
at the EPO. Several reasons are brought forward to account for this
difference, such as a popularity of the USPTO due to the size of the
market and low cost of gaining a US patent in comparison, as well as
a more stringent patent examination at the EPO.43 Still, when the IP

42
╇ Jensen, K. and Murray, F., ‘Intellectual Property Landscape of the Human Genome’,
310 Science 2005, 239–240.
43
╇ Hopkins, M.M., Mahdi, S., Thomas, S.M., Patel P. ‘The patenting of human dna:
global trends in public and private sector activity (The PATGEN Project)’ Report on
a European Commission’s 6th Framework programme 2006.
16 Birgit Verbeure

rights necessary to arrive at a commercial end product such as a kit for

diagnostic testing are held by patentees too numerous or heterogeneous
to agree on licensing terms, an anticommons effect to the detriment of
the public (the patients) may emerge for which a patent pool could be
the answer.

Policy incentives
The USPTO suggested in a white paper in 2000 that the solution to
some gene patent problems might be the use of patent pools. In the
words of Q. Todd Dickinson, the Under Secretary of Commerce for
Intellectual Property and Director of the US Patent and Trademark
Office at that time:
Biotechnology is heavily dependent on patent protection to maintain viability.
While most biotechnology companies are responsible corporate citizens, offer-
ing reasonable access to their patented inventions, one concern about broad
patenting in biotechnology, especially regarding genomic inventions, is the
ease and cost of licensing multiple patents. Patent pools can allow reasonable
access to patented genomic inventions, thereby promoting research and devel-
opment while also promoting competition through patenting.

The Organization for Economic Co-operation and Development

(OECD, 2002) considers the patent pool concept to be interesting for
biotechnology, but has some doubts as to whether the technologies and
markets for genetic inventions are amenable to pools and called for fur-
ther study. Also the Australian Law Reform Committee carefully stud-
ied issues relating to gene patenting and human health. In their report
dating back from 1999, patent pools are mentioned as a viable option to
facilitate gene-patent licensing.44

Inspiring case studies

There is currently no widespread use of the patent pool approach in
the biomedical area, although some inspiration on how a collaborative
arrangement might function in this field can be found and will be dis-
cussed briefly.
Golden Rice.╇ Golden Rice is an instructive case on patterns of
�protection€ and on negotiation through patent thickets in the field of
agricultural biotechnology. Potrykus succeeded in genetically �enriching

╇ The report is available at www.austlii.edu.au/au/other/alrc/publications/reports/99/.

44
 Patent pooling: conceptual framework 17

rice grains with b-carotene, the precursor to vitamin A,45 as a result

of which the grains are yellowish in colour and called “Golden Rice”.
Potrykus wanted to transfer the Golden Rice materials to developing
countries for further breeding in order to introduce the trait in local
varieties consumed by poor people. However, a freedom-to-operate sur-
vey uncovered seventy patents belonging to thirty-two different com-
panies and universities embedded in Golden Rice.46 The six key patent
holders were approached and an agreement was reached that allowed
Potrykus to grant licenses, free of charge, to developing countries, with
right to sub-license.47,â•›48,â•›49 A Humanitarian Board (“HumBo”) was
established as a voluntary association to assist in governance and deci-
sion making.50 Around twenty “master licenses” have been granted so
far to developing country institutions in Asia (Personal communication
Anatole F. Krattiger).
The Golden Rice case is an example of how private and public organ-
izations in a combined effort dealt with the patent thicket by creating
a non-profit humanitarian patent pool in the form of a single licensing
authority.51,â•›52,â•›53,â•›54
SARS pool.╇ A recent case where a situation of overlapping patents is
emerging and where laboratories try to remove the thicket by way of a

45
╇ Beyer, P., Al-Babili, S., Ye, X., Lucca, P., Schaub, P., Welsch, R. and Potrykus, I.
‘Golden Rice: introducing the beta-carotene biosynthesis pathway into rice endosperm
by genetic engineering to defeat vitamin A deficiency’, 132(3) The Journal of Nutrition
2002, 506S-510S.
46
╇ Kryder, R.D., Kowalski, S.P. and Krattiger, A.F. ‘The intellectual and technical
property components of pro-vitamin A rice (Golden rice TM): A preliminary free-
dom to operate review’, ISAAA Briefs No. 20, 2000.
47
╇ Zeneca (now Syngenta) press release: ‘Golden Rice collaboration brings health beneÂ�
fits nearer’, 16 May 2000.
48
╇ Zeneca (now Syngenta) press release: ‘International Rice Research Institute begins
testing Golden Rice’, 22 January 2001.
49
╇ Zeneca (now Syngenta) press release: ‘Syngenta to donate Golden Rice to
Humanitarian Board’, 14 October 2004.
50
╇ Dubock, A.C. ‘Public goods and public policy for agricultural biotechnology’,
7th€ICABR International Conference, Ravello (Italy), 29 June to 3 July, 2003.
51
╇ Graff, G. and Zilberman, D. ‘Towards an intellectual property clearinghouse for
Ag-Biotechnology. An issues paper.’, 3 IP Strategy Today 2001.
52
Graff, G., Bennett, A., Wright, B. and Zilberman, D. ‘Towards an intellectual prop-
erty clearinghouse for Ag-Biotechnology. Summary of an industry.’, Academia and
International Development Round Table, 3 IP Strategy Today 2001.
53
╇ Graff, G.D., Cullen, S.E., Bradford, K.J., Zilberman, D. and Bennett, A.B. ‘The
public-private structure of intellectual property ownership in agricultural biotech-
nology’, 21 Nature Biotechnology 2003, 989–995.
54
╇ Parish, R. and Jargosch, R. ‘Using the industry model to create physical science patent
pools among academic institutions’, Journal of the Association of University Technology
Managers 2003, 65–79.
18 Birgit Verbeure

pool, relates to the biomedical field, namely to the SARS corona virus.55
In response to the outbreak of Severe Acute Respiratory Syndrome
(SARS), the World Health Organization (WHO) set up a network of
laboratories to help control the disease, which led to the isolation of
the causative virus and the sequencing of its genome. Apparently two
groups discovered the SARS genome independently from each �other.56,╛57
Several of the contributing laboratories filed patent applications incor�
porating SARS genomic sequence data and further research led to the
filing of additional patent applications by both public and private sector
entities.58 The WHO set up a SARS consultation group which pro-
posed “that a strategy be developed, in consultation with stakehold-
ers, to address potential SARS corona virus related IP issues and thus
enhance development of intervention approaches”.
At present, the relevant parties have been identified and principal
agreement has officially been gained by the signing of a letter of intent.
Highly qualified technical and legal experts assist the parties during
the chain of negotiations.59
Green Fluorescent Protein.╇ Sometimes also referred to as a biotech
patent€ pool is the GFP pool. Green Fluorescent Protein (GFP) is a
fluorescent reporter molecule with a wide spectrum of applications in
life science research. For example, GFP is used in molecular biological
research to elucidate the molecular mechanisms of cell biology, in
pharmaceutical compound screening to monitor either protein behav-
iour or gene activation in response to treatment with test compounds,
incorporated within the genome of transgenic organisms etc. The intel-
lectual property (IP) associated with Aequorea victoria GFP (AvGFP)
is complex. Via a series of strategic alliances, GE Health care acquired
the rights to offer sub-licenses to AvGFP IP thus enabling users to
obtain these rights from a single source. Upon closer analysis of the
situation, the GFP pool is rather an example of aggregation of patent
rights with subsequent out-licensing of the technology. As can be read

55
╇ Simon, J.H.M., Claassen, E., Correa, C.E. and Osterhaus A.D.M.E. ‘Managing
severe acute respiratory syndrome (SARS) intellectual property rights: the possible
role of patent pooling’, 83(9) Bulletin of The World Health Organisation 2005, 641–720.
56
╇ Rota, P.A. et. al. ‘Characterization of a novel coronavirus associated with severe acute
respiratory syndrome’, 300 Science 2003, 1394–1399.
57
╇ Marra, M. A. et. al. ‘The genome sequence of the SARS-associated coronavirus’, 300
Science 2003, 1399–1404.
58
╇�����������������������������������������������������������������������������������Simon et al. ‘Managing severe acute respiratory syndrome (SARS) intellectual prop-
erty rights: the possible role of patent pooling’.
59
╇ A more profound insight into the current state of affairs of the SARS patent pool will
be given by Carmen Correa from Vironovative, one of the patentees involved in the
setup of this pool, see Chapter 3 of this volume.
 Patent pooling: conceptual framework 19

on their website, the GFP License offered by GE Health care includes

the rights covered by European, US and Japanese patents covering
different mutations that greatly enhance the properties of AvGFP. As
a particularity, it should be noted that not just one license is offered
covering the full portfolio, but a wide range of licenses are available,
offering considerable flexibility and ensuring the most cost-effective
solution, by purchasing only the rights that are required. When pur-
chasing a GFP product, the user automatically acquires a license for use
of the AvGFP technology for the use for which the product is intended.
Besides the AvGFP License, they also provide a license for the basic
GFP claims held by Columbia University.
SNP Consortium.╇ In 1999, the SNP Consortium60 was organized with
inputs from both private and public players in the field, and as a non-profit
foundation to provide public data on single nucleotide �polymorphisms
(SNPs). The SNP Consortium has already been referred to as a patent
pool, but could more appropriately be named “intellectual property
pool”. It is not the intention here to refer to the SNP Consortium as an
example of a proper patent pool. Though there is an interesting aspect
to the SNP Consortium with respect to the feasibility, in particular
the possible incentives, to set up a patent pool in the area of genetics.
The SNP Consortium initiative demonstrates the openness within the
ge�netics community (ranging from academic research institutes to large
pharmaceutical entities) vis-à-vis sharing IP under conditions that are
acceptable for all parties involved. A major incentive hereto that may
be derived from this example is to further or facilitate research in a
cooperative way. Contrary to for example the Human Genome Project,
strict rules governed the IP generated within the consortium to ensure
free access for all at the end of the ride. Provisional patent applications
were filed as new SNPs were discovered and prior to release into the
public domain, thereby maintaining the priority date of discovery of
the SNP for use as prior art. The provisional applications were later
converted into US utility patent �applications and instead of prosecuting
to grant, the applications were then converted into statutory invention
registrations.61 In order to prevent the facilitation of �patenting of the

60
╇ Holden A.L. ‘The SNP consortium: summary of a private consortium effort to develop
an applied map of the human genome’, 26 Biotechniques Supplement 2002, 22–24.
61
╇�����������������������������������������������������������������������������������������In US patent law, a statutory invention registration (SIR) is a publication of an inven-
tion by the USPTO at the request of the applicant (i.e. inventor(s) or assignee(s)).
Statutory invention registrations were used by applicants for publishing patent appli-
cations they no longer felt they could get patents on. By publishing the patent applica-
tions, they helped insure that the inventions were in the public domain and no one
else could subsequently get a patent on them. As of the 1999 American Inventors
20 Birgit Verbeure

same SNPs by third parties, the identified SNPs were only released to
the public when mapping had been achieved. The IP policy of the SNP
Consortium was set up in order to maximize the number of SNPs that
(1) enter the public domain at the earliest possible date, and (2) are free
of third-party encumbrances such that the final SNP map can be used
by all without financial or other IP obligations.

Patents in genetic testing: technology specific versus diagnosis

specific patents
Two types of patents can be identified when looking at genetic testing:
technology specific patents and diagnosis specific patents.62
Technology specific patents encompass general molecular biological
technologies such as amplification, labelling or detection of nucleic
acid fragments. The technology used can be the same for different
diagnostic tests. Additionally, different technologies may be used for
a particular diagnostic test. For example, if an amplification step is
needed, this can be achieved using Roche’s polymerase chain reac-
tion technology (PCR). When looking back at the entry of PCR in the
market, there was concern about the cost and access to the technol-
ogy due to the licensing. Over time a system was set up by Roche to
value its PCR inventions through licenses to the technology as such or
through the development and sale of instrumentation and biologicals.
Alternatively, other methods such as Gen-Probe’s transcription-medi-
ated amplification, Becton Dickenson’s strand displacement amplifi-
cation, Biomerieux’s nucleic acid sequence-based amplification or the
branched DNA technology from Bayer can be used. In other words,
PCR was subject to a competition-driven environment where alter-
natives were available or possible, urging the patentee to competitive
licensing terms in order to create revenue.
Diagnosis specific patent protection is specific for the diagnosis of
a certain defect or disease. Examples of such patented subject matter
include the specific nucleic acid sequences, mutations or polymor�
ph�isms correlated with that certain defect or disease (disease gene

Protection Act, however, most patent applications filed in the US have been published
18 months after they were filed. These published patent applications serve a similar
purpose to a statutory invention registration. Once an application is published, an
inventor need only let their application go abandoned in order to give up their right
to a patent and dedicate the invention to the public. Also see www.uspto.gov/web/
offices/pac/mpep/documents/appxl_35_U_S_C_157.htm.
62
╇ Vlassak, K. and Schüller, K. (2007) ‘The effect of patents on research and develop-
ment of diagnostic kits’, in Van Overwalle, G. (ed.), Gene Patents and Public Health,
Bruylant, 99–113, at 104.
 Patent pooling: conceptual framework 21

patents). These patents are not only different for each diagnosis per-
formed. They are also essential to the gene-based diagnosis of that par-
ticular disease, essential in the same way as patented technology should
be essential for a standard in the formation of a patent pool. Contrary
to technology specific IP, there is no alternative to possibly circumvent
such an �essential patent when performing genetic testing for the par-
ticular disorder.
Within the group of diagnosis specific patents on which we will
be focusing, two types of “overlapping” rights, and thus in a more
extreme scenario, two types of patent thickets may emerge. These two
types of overlapping rights could raise different issues with respect to
the interpretation of essentiality in the framework of a patent pool and
with respect to incentives for patent owners to cooperate. First, due to
the cumulative nature of research, a thicket may be vertically oriented.
A€ first patent may be granted on the initially unravelled diagnostic
gene-disease link, while at a later stage of the research additional pat-
ents may be filed for example on specific mutations within that gene.
These types of patents centre on a single gene and exhibit a high degree
of interdependence urging patent owners to cooperate. A second type
of thicket would be horizontally oriented. Such could be the case with
multi-trait or multi-gene based disorders. One disease may be caused
by defects caused by different genes, independently or cooperatively.
In such a situation, interdependence of different patents is less obvious
which leaves more room for patent owners to act independently.

Anticommons effect for gene-based diagnostics: blocking positions

and patent thickets
Under this heading, we aim to paint a picture of the patent situation for
genetic testing and resulting licensing issues. Based on these observa-
tions, some of the requirements imposed by competition law for the
patent pool model to be an appropriate model to deal with licensing
issues in this field can be evaluated.
A blocking patent position is a patent covering all or part of the tech-
nology that is essential to a certain activity. Due to its essentiality, one
must get the permission from the patentee to use the technology. As
defined above, a patent thicket occurs when multiple patents cover the
same application or technology. An anticommons effect, understood as
restricted access to a technology due to restricted access – because of a
patent thicket or because of a single blocking position – and therefore
under-use of appropriated technology, can be the result of a blocking
position and/or patent thicket. When caused by one blocking position,
22 Birgit Verbeure

report has it that there is a refusal to license a key patent (at a reasonable
price). Within the field of genetic testing, several reports caution for an
anticommons effect of gene patents, i.e. restricted availability of testing
for the patent. In most of these reports, the reason given is restrictive
licensing behaviour that patentees display regarding these (diagnostic)
gene patents.63
There are some well-known examples that nicely illustrate the broad
spectrum of possible licensing strategies that are pursued in the field of
gene-based diagnostic testing with respect to gene patents.
At the most restrictive end of the range of licensing policies for diag-
nostic testing is located the well-known and much debated approach
of Myriad Genetics with regard to the testing for early-onset familial
breast and ovarian cancer on the basis of BRCA1 and BRCA2. After a
joint effort of several laboratories (Breast Cancer Linkage Consortium),
Skolnick and co-workers at the University of Utah were the first to
announce they had identified a gene at the basis of the predisposition to
hereditary breast cancer and named it BRCA1. Patents were filed and
eventually granted. The exclusive rights to the patents were assigned
to Myriad Genetics. Soon after, a second gene also at the basis of the
predisposition to hereditary breast cancer, BRCA2, was identified and
patented.64 The Myriad business model is to license the test for BRCA
exclusively to a limited number of commercial genetic laboratories
within specific geographic regions. However, these laboratories may
only be licensed to perform limited testing of the BRCA genes, with
complete sequence analysis performed only by Myriad in Salt Lake
City (Utah, USA) at the cost of $2,580.65
At the other extreme end of the range of possible enforcement strat-
egies is the IP management on the testing for Huntington Disease (HD)
located. James Gusella and collaborators identified the location of the
Huntington’s gene on human Chromosome 4 in 1983, a discovery that
was hailed as one of the most important advances in human genetics. It
took another ten years of hard work to clone the HD gene itself. When
Gusella and the Michigan General Hospital (MGH) filed for patents on
the genetic testing for HD based on their findings, their main concern

63
╇ Cho M.K., Illangasekare, S., Weaver, M.A., Leonard, D.G. B. and Merz, J.F.
‘Effects of patents and licenses on the provision of clinical genetic testing services’,
5(1) Journal of Molecular Diagnostics 2003, 3–8.
64
╇ For an overview of the BRCA1 and BRCA2 patents, see Verbeure, B., Matthijs, G.
and Van Overwalle, G. ‘Analysing DNA patents in relation with diagnostic genetic
testing’, 14 European Journal of Human Genetics 2006, 26–33.
65
╇ Walpole, I.R., Dawkins, H.J.S., Sinden, P.D. and O’Leary P.C. ‘Human gene patents:
the possible impacts on genetic services health care’, 179 Medical Journal of Australia
2003, 256–283.
 Patent pooling: conceptual framework 23

was that the technology not be used inappropriately. They believed they
might use the exclusionary right of the patents to control the testing
process thereby ensuring the quality of HD testing. To date, MGH has
not exerted its own patent rights or licensed the patents to others for
financial gain.
Somewhere in between the previous two approaches is located the
licensing policy with regard to Cystic Fibrosis and the delta F 508 dele-
tion held by the Hospital for Sick Children of Toronto and the University
of Michigan. The cystic fibrosis (CFTR) gene and the delta F 508 dele-
tion were identified in 1989 and patent applications were filed.66 The
patent is exploited by collecting royalties on gene-based commercial
test kits only. Otherwise, non-exclusive (free) in-house diagnostic test-
ing licenses are granted for use of the technology.
Leonard has reported more examples of restrictive licensing practices
with regard to genetic testing.67 Most of the currently tested genetic
diseases that are reportedly restricted by gene patents are single gene
diseases. And at present, the problems perceived seem to be mainly the
consequence of one blocking patent (or patents owned by a single patent
owner), not the presence of a patent thicket. According to Cournot’s
theory, the creation of a patent pool is an economically attractive model
especially in an area with blocking patents. However, this viewpoint
starts from the premise that there are at least two players holding block-
ing positions, a situation that is not always applicable to disease-specific
patents for genetic testing, and willingness to license. It is therefore
questionable whether the patent pool model is the appropriate solu-
tion to the problematic access to some of these patents when caused by
restrictive licensing.
However, the situation could be of a different nature in case of poly-
mutational or multi-gene based diseases. For example, the diagnosis of
Hereditary Non-Polyposis Colorectal Cancer (HNPCC) in a particular
family is in part based on molecular genetic testing for germ line muta-
tions in one of the mismatch repair (MMR) genes. Typically, patients
are being tested for two or more of four genes (MLH1, MSH2, MSH6,
and PMS2) but other genes involved in the MMR pathway have been
reported to be associated with HNPCC (e.g. MLH2, MLH3, PMS1,
MSH3, MSH5, MYH ). The number of identified genes involved in
familial colorectal cancer is expected to grow even more. Some of these
newly identified genes may soon be on the shortlist for “routine testing”.

╇ WO 91/02796.
66

╇ Document available at www7.nationalacademies.org/step/Leonard_presentation_

67

October_proteomics.ppt.
24 Birgit Verbeure

Possibly, overlapping patents may emerge on the genetic data necessary

in testing for HNPCC as various patent holders filed patents.68 Might
a patent thicket arise, an HNPCC pool encompassing the essential
gene patents could help to eliminate the thicket and render proprietary
ge�nomic data more accessible for use. Additionally, the patent pool is to
be considered a dynamic model, both with regard to size and use. As to
size, the pool will differ over time. Additional patents that are essential
to the pool, once granted, can enter the pool (e.g. on other genes with a
role in the same pathology and on particular mutations in those genes);
other will disappear when no longer valid. As to use, licenses to a sub-
set of patents should be possible. Some genetic laboratories, offering
testing for the clinical condition as a whole, might be interested in the
entire pool. Other laboratories might only be interested in a license to
a subset of patents in the pool: a subset of disease genes or mutations,
which are of specific interest in view of the geographical heterogeneity
of the distribution of mutations; a specific gene, or even a particular
mutation for the development of an antibody or another therapeutic or
research tool.
In line with poly- or multi-gene-based diseases, other situations
abound in the field of genetic diagnostics that may give rise to a patent
thicket with several blocking patents, for example in pharmacogen�omics
and DNA array technology. Pharmacogenomics is characterized by the
analysis of differential gene expression to provide molecular subtype
information for disease prognosis and treatment choice. They usually
involve many different genes and variants that alter protein expression
or function, a characteristic they have in common with the genetics
underlying complex diseases.
With growing knowledge of pharmacogenetics and multi-trait dis�
orders uncovering an entanglement of all kinds of genetic variation pos-
sibly spread over multiple genes, also the complexity of the IP related to
the development of a diagnostic assay grows. As shown in the hypothet-
ical case of HNPCC and further supported by the studies on economic
effects of patent pool formation, patent pooling could be an attractive
model for dealing with complementary, yet essential DNA patents. To
allow a certain degree of flexibility regarding which gene patents would
be needed for the implementation of a certain application – a defined
panel of genes to be tested for a certain disease, or a set of patents
needed for producing a particular pharmacogenomics chip – the patent

╇ European patent applications have been identified for example for MSH2, MLH1,
68

PMS2 and MSH5. Patent holders include Human Genome Sciences, John Hopkins
University, Oregon Health Sciences University and Dana-Farber Cancer Institute.
 Patent pooling: conceptual framework 25

platform could provide for an appropriate model. Within a patent plat-

form for genetics, individual patent pools could be narrowly defined
around single genes comprising vertically oriented patents. These indi-
vidual patent pools may then be associated in a platform, thereby pro-
viding access to horizontally oriented thickets.

Incentives, benefits and doubts

The initial idea for patenting an invention is to award original research
and recuperate investment in return for making public the invention.
A return on investment is achieved through revenue coming from the
exploitation of the invention, whether this is by putting the technology
itself to work or through royalties. For third parties, different licensing
schemes may be envisaged for legitimately accessing a patented technol-
ogy whereby the inventor or patent owner is appropriately �rewarded.69
In this section, we aim to identify potential incentives for patent owners
to set up a pool or platform; resulting benefits and potential issues will
be assessed.

Standards
An important aspect in the success of ICT patent pools is standard
setting. Standards can be an important trigger to set up a pool, as illus-
trated in the ICT sector. In the field of genetics, a standard could present
itself as a set of genes or mutations to be screened, which are recognized
by the international scientific community, or which reflect national or
international best practice guidelines for genetic testing for a particular
disease such as the standards and guidelines issued by the American
College of Medical Genetics for Cystic Fibrosis70 or Huntington’s dis-
ease.71,â•›72 Such guidelines could serve as an authoritarian guidance in
the establishment of corresponding patent pools for the determination
of essentiality and judgement on which IP should be included in the
pool. The OECD already indicated that “if a limited field of application

69
╇ Van Overwalle, G., van Zimmeren, E., Verbeure, B. and Matthijs, G. ‘Models for
facilitating access to patents on genetic inventions’, 7 Nature Reviews Genetics 2006,
143–154.
70
╇ Richards, C.S. et. al. ‘Standards and guidelines for CFTR mutation testing’, 4
Genetics in Medicine 2002, 379–391.
71
╇ Potter, N.T., Spector, E.B., Prior, T.W. ‘Technical standards and guidelines for
Huntington disease testing’, 6 Genetics in Medicine 2004, 61–65.
72
╇ Ebersole, T.J., Guthrie, M.C. & Goldstein, J.A. ‘Patent pools and standard setting in
diagnostic genetics’, 23 Nature Biotechnology 2005, 937–938.
26 Birgit Verbeure

and the essential patents can be defined in biotechnology, the patent

pool model is worthy of consideration”.73
Nevertheless, although it seems that a standard could be defined in
genetics, it is not likely that such a standard could play a similar role in
the setup of a patent pool as it does for ICT. In ICT a standard is set to
guarantee interoperability of essential devices to a certain product, and
to some extend, an ICT standard is based on arbitrary choice and – for
evident reasons – all players want their technology to be part of the
standard. Additionally, all players want reasonable access to comple-
mentary technologies in that standard. A standard for genetics on the
contrary is a definition of the essentials of a gene-based disorder based
on the knowledge build up over years of research. The way a standard
for genetic testing is defined here, it might serve the role of quality con-
trol of testing services while it is dictated by natural occurrence, not by
human choice, whereas an ICT standard rather defines the technology
based on parameters set by the community. In genetics, there is not the
need for the same type of interoperability, there is no such arbitrary
decision involved defining a standard for genetic testing.

Potential revenue
One of the burning questions as to the feasibility of patent pools for
genetics will be whether the creation of a patent pool levers the patentee
an appropriate or expected revenue. The potential revenue from a
(diagnostic) gene patent will ultimately depend on the total number of
patients eligible for a genetic test. However, the actual revenue will be
determined by the amount of diagnostic kits sold by the manufactur-
ers and the number of tests effectively carried out in diagnostic testing
centres. At present, owners of genetic patents mainly license to com-
panies developing commercial kits and to large diagnostic laboratories.
Patent pools may raise visibility and accessibility towards smaller or
public genetic laboratories and thus may increase the actual amount
of collected royalties by increasing its mass, thereby bridging the gap
between potential and actual revenue. For example, several laboratories
are still using “home brew” methods for cystic fibrosis testing, although
several appropriate kits are commercially available. For other genes the
diagnostic method is less amenable to a commercial product in the
format of a kit for detection of a selected number of mutations. This
is presently the case for e.g. the breast and ovarian cancer, tuberous

73
╇ OECD (2002) ‘Genetic Inventions, Intellectual Property Rights and Licensing
Practices – Evidence and Policies’, document available at www.oecd.org/
dataoecd/42/21/2491084.pdf.
 Patent pooling: conceptual framework 27

sclerosis or neurofibromatosis. In both instances, litigation is difficult

since data about the number of tests being performed are hard to find
and litigation is costly and the amount of money to grasp small in com-
parison. The introduction of “all-in-one” licenses via the establishment
of patent pools may promote a spontaneous registration by the users,
and ease the collection of license fees.
A patent pool comprising the scattered rights on diagnostic genes
could well lower the barrier of entry for users, e.g. the molecular diag-
nostic labs, and help them to adjust to the emerging phenomenon of
patents in their practice and to facilitate the regularization of their
service by creating clarity and legal certainty. For similar reasons, a
gene pool can remove the reluctance to enter into research and incite
inno�vation and test development, both from the perspective of pre- and
post-pool formation.
However, to assess the potential overall economic benefit, not only
the revenue of the patent pool but also the cost has to be considered. In
order for a patent pool to be an effective solution, a right balance has
to be achieved between the cost of creating and administering a pool
and the prospect of adequate revenue generated by royalties on the end
product. It remains to be seen whether a diagnostic gene patent pool
covering only one disease syndrome will reach such a balance and to
what extent small-size pools will prove to be viable. Extending those
pools to a wider range or all genetic disorders in the form of a patent
pool platform (vide supra) could prove to be more useful from an eco-
nomic or a “clearing” point of view. Costs related to the set up of the
individual patent pools and subsequent administration of the licensing
could be substantially reduced when dealt with by a joint administering
body in the framework of a patent platform.
Still, patent pools rely on the voluntary engagement of the patent
owners. Conceptually, patent pools do not offer a solution in cases
where patent holders do not wish to grant (reasonable) licenses. In both
the Golden Rice and the SARS case, voluntary negotiations involv-
ing all essential patent owners appeared to be successful. One can only
hope that the same would be true in future cases. To avoid the problem
of holdout of essential patents, i.e. patent owners would purposely not
contribute an essential patent to the patent pool, a grant-back clause
might be included in the third-party standard licensing agreement. The
grant-back clause would pertain to all patents essential to the technol-
ogy and would not be strictly limited to essential patents covering fur-
ther improvements of the pooled patents. The patent holder refusing
to grant a license would be denied access to the other essential patents
when not allowing access to his own. However, relevant to the scope
28 Birgit Verbeure

of the clause, such a clause could be seen as anticompetitive by the

authorities.
Another way to approach an absence of voluntary engagement might
be to resort to a compulsory licensing mechanism. Although compul-
sory licenses should be the last resort in a competitive environment, a
“compulsory patent pool” in which a patent pool entity would seek a
compulsory license from a patent holder of essential technology who
does not voluntarily engage in the pool could be further investigated.
However, it remains to be seen whether IP and competition law allow
these measures. For example, problems might arise due to the prohi�
bition of sub-licensing of patent rights acquired by the pool entity on
such terms.74
On the other hand, instead of considering these more coercive actions
to motivate patent owners, the SNP Consortium project proves that the
perceived economic value of participation in a patent pool is not neces-
sarily directly measurable in terms of licensing fees and royalty collec-
tion. The SNP Consortium is an example where pooled IP and pooled
technical effort, resulted in both a cost-effective and very pro-compet-
itive outcome. The specific IP policy of the SNP Consortium allowed
for patenting any downstream invention made using the SNPs and the
SNP map without any additional payment to or license from the con-
sortium. One could say that the SNP Consortium is an IP pool, effect-
ive in clearing the thicket by anticipation.75 Most remarkably, it was
largely made possible by the initiative and substantial financial input
from the pharmaceutical industry, otherwise perceived as the biggest
obstacle towards creating access in the biomedical field.

1.4 Concluding remarks

Patent pools are designed to settle the stacking of multiple patents and
multiple patent holders. Hence, pools are not applicable when one or more
patents belonging to a single patent holder is controlling the genetic test-
ing for a particular disease. Problems presently perceived as restricted
access due to patents are mainly related to such a blocking position and
not to a patent thicket. For example, one patent owner holds the differ-
ent patents covering Hemochromatosis diagnosis.76 On the contrary, all

74
╇ See TRIPS, Art 31.
75
╇���������������������������������������������������������������������������������������Grassler, F. and Capria, M.A. ‘Patent pooling: uncorking a technology transfer bottle-
neck and creating value in the biomedical research field’, 9(2) Journal of Commercial
Biotechnology 2003,111–118.
76
╇ Merz, J.F., Kriss, A.G., Leonard, D.G. and Cho, M.K. ‘Diagnostic testing fails the
test’, 415 Nature 2002, 577–579.
 Patent pooling: conceptual framework 29

putative patent pool cases discussed – Golden Rice, SARS, GFP and the
hypothetical example of HNPCC – encompass multiple patents belong-
ing to two or more patent holders. Also the SNP Consortium was incited
by the otherwise high degree of fragmentation of IP.
However, given research developments in the genetics sector, setting
up patent pools might turn out to be helpful in the area of genetic test-
ing in the future to clear patent thickets, especially for disorders caused
by multiple defects in a single gene (vertical thicket), diseases provoked
by one or more defects in multiple genes, or, for the more common,
multifactorial diseases for which often complex genetic associations
are being discovered and consequently for which a patent thicket could
emerge (horizontal thicket).
In the case a patent thicket would present itself, the emerging stan�
dards for good practice in medical and laboratory genetics can prove to
be helpful in setting up patent pools. Vice versa, the thorough scientific
evaluation of the patent portfolio in the framework of a patent pool
could help to establish or to adjust those standards.
Still, seen the limited scope of a pool centred on a single disorder for
which clinical testing is done at present (mostly single-gene disorders,
or disorders based on a handful of genes), it might be hard to achieve
a positive cost–benefit balance in the set-up of a patent pool. However,
patent pool projects for different disorders may be set up by a joint
administrative body creating a patent pool platform thereby reducing
the cost compared to individual set up.
Additionally, although the patents may lack a high level of interdepend-
ence in the way it is known in the ICT sector, the SNP Consortium
shows that the true economic incentive should perhaps be sought beyond
the direct return in license fees and royalties, in a facilitating effect on
innovation or in a concern for assurance or improvement of the quality
of health care services, thereby benefiting all parties involved.

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2 Case 1. The MPEG LA® Licensing Model
What problem does it solve in biopharma and
genetics?

Lawrence A. Horn

2.1 Introduction
Consumer electronics, telecommunications, computer and related
industries have successfully employed a patent licensing model that
encourages innovation through marketplace competition by balancing
patent holders’ expectation of reasonable return on their intellectual
property (IP) with marketplace desire for widespread availability of
technology. The model pioneered by MPEG LA1 offers fair, reasonable,
non-discriminatory access to essential IP from multiple patent holders
under a single license as an alternative to separate licenses. The MPEG
LA® Licensing Model has worked well where it solved a problem. But,
what problem does it solve in biopharma and genetics?

2.2 Background
A patent is the grant of a property right covering an invention. The
right conferred by the patent gives its owner the right to exclude others
from making, using, offering for sale, selling or importing the inven-
tion in the absence of a license. Where standards and other technology
platforms consist of many patents owned by many patent owners, the
number of licenses required of users may be too costly and inefficient
for users to negotiate. This is often referred to as a patent thicket.2 By
increasing uncertainty and conflict and restricting freedom of move-
ment surrounding use of a technology, a patent thicket may impede its
adoption, interoperability and use.
In the 1990s the MPEG-2 standard, which is required for DVD, sat-
ellite, cable and other digital video applications, faced a patent thicket.

1
╇ See www.usdoj.gov/atr/public/busreview/215742.htm; www.mpegla.com.
2
╇ See, for example, Shapiro, C., ‘Navigating the patent thicket: cross licenses, patent
pools and standard setting,’ http://haas.berkeley.edu/~shapiro/thicket.pdf.

33
34 Lawrence A. Horn

The single biggest challenge to MPEG-2 adoption was access to essen-

tial patents. MPEG-2 patents owned by many parties made it virtually
impossible for the standard to be used. MPEG LA offered an alterna-
tive as a solution addressing the market’s need for transactional effi-
ciency. As a convenience to users, the licensing model pioneered and
employed by MPEG LA enables multiple MPEG-2 users to acquire
essential patent rights from multiple patent holders in a single transac-
tion as an alternative to negotiating separate licenses. MPEG-2 became
the most successful standard in consumer electronics history, and the
MPEG LA® Licensing Model (see Figure 2.1) has become the template
for addressing other patent thickets.3
Wherever an independently administered one-stop patent license
would provide a convenient alternative to assist users with implementa-
tion of their technology choices, the MPEG LA® Licensing Model may
provide a solution. MPEG LA is granted a nonexclusive sublicense to
essential intellectual property rights (IPRs) owned by multiple essen-
tial IPR owners, offers users a single license incorporating them on fair,
reasonable non-discriminatory terms, collects and distributes royalties
for the benefit of essential patent owners, and receives an administra-
tive fee out of royalties collected. MPEG LA is an independent licens-
ing administrator; it is not related to any standards agency and is not
itself a user or owner of patents under license or an affiliate of a patent
owner.
By balancing patent users’ interest in reasonable access with patent
owners’ interest in reasonable return, MPEG LA creates the opportuÂ�nity
for adoption of new technologies and fuels innovation. Today MPEG
LA clears patent thickets in licensing programs consisting of essential
patents in fifty-seven countries.4 Additional licensing �programs are in
development.5

2.3 Elements of the MPEG LA® Licensing Model

Where many users require many licenses under many interdependent
patents owned by multiple patent holders, a patent pool license may
be useful in promoting technological innovation and use, permitting
freedom of technological movement, reducing the potential for con-
flict and providing a realistic alternative to traditional bilateral licenses.
The following summarizes various legal, marketing and organizational
elements.

╇ See www.mpegla.com.

3
╇ See www.mpegla.com.
4
╇ See www.mpegla.com/pid/.
5
 Case 1. The MPEG LA® Licensing Model 35

MPEG LA® “Many-to-Many”

“One-to-Many” “Many-to-One” Licensing Model

IPR IPR IPR IPR IPR IPR

IPR IPR
IPR IPR

IPR Thicket

Licensee Licensee Licensee Licensee Licensee

Licensee
Licensee Licensee Licensee Licensee

Figure 2.1 MPEG LA® Licensing Model

Marketability
A license must be responsive to marketplace needs and to variations on
the MPEG LA® Licensing Model suited to meet them. Without both
buyers and sellers, a license is unmarketable. Among other things,
licenses should: resolve patent thickets (critical mass of essential patent
holders with a critical mass of essential patents) that favor a pool license
as an alternative to bilateral licenses; the subject technology should be
of value to a mass market; royalty products should be readily iden-
tifiable; and the license should reflect a balance of royalty, revenue,
administrative fee and other incentives that realize reasonable return
to patent holders, reasonable access for licensees, reasonable profit for
a licensing administrator, and necessary compliance and enforcement
efforts.

Legal tenability
A patent pool license offers fair, reasonable, non-discriminatory access
to essential IP, with the goal of including as much IP as possible for
the convenience of the market. The patent pool administrator employs
independent patent experts to evaluate patents for their essentiality to
the defined technology, offers a standard license agreement with the
same terms to everyone, actively markets the license and takes respon-
sibility for enforcing contractual compliance.
36 Lawrence A. Horn

Essentiality and a defined field of use

A patent may not be included unless it is infringed by use of the defined
technology. This communicates clearly to both licensors and licensees
the rights granted by the joint license and why patents are included
or excluded. As a legal matter, it assures that the joint license is pre-
cise enough to include what a licensee needs to practice the particular
technology and that competent competitive implementation options are
neither favored nor foreclosed.

Nonexclusivity
Alternative (e.g. direct) licensing options are not precluded either to
licensors or licensees.

Independence
The licence administrator is neither licensor nor licensee (nor an affili-
ate of any); both are customers, thus assuring impartial administra-
tion of the joint licence with a goal of balancing reasonable access for
users with reasonable return to patent owners. Each licensing program
is administered separately, fairly and impartially.

Licensor protections
Licensors share in reasonable allocation of royalties commensurate
with their contributions to the licence. The independent patent evalu-
ation process and openness of the joint licence to as many essential
patents as possible assure fairness, value and competition law compli-
ance.6 In addition, to prevent licensees from using the joint licence to
protect themselves from lawsuit in order to sue others on their own
patents and to encourage negotiation and innovation in support of
the technology platform, a patent holder may remove its patents from
coverage as to a particular licensee if the licensee brings a lawsuit or
other proceeding for infringement of an essential or related patent
against the licensor and has refused to grant the licensor a licence on
fair and reasonable terms and conditions under such patents on which
the lawsuit is based.

╇ For example, the MPEG-2 Patent Portfolio Licence has grown from the original
6

8€�patent owners and 100 essential patents to include more than 825 essential patents
in 57 countries owned by 25 patent owners. There are approximately 1,500 licensees.
See www.mpegla.com.
 Case 1. The MPEG LA® Licensing Model 37

Licensee protections

Licensee data is protected as confidential from both patent holders,

licensees and others. In addition, licensors are required to include all of
their essential patents to the defined technology. Licensees are assured
most favourable royalty rates and pay the same royalties to MPEG LA
whether or not they are patent owners. To assure that a licensee does
not take advantage of the joint licence yet refuse to license its own pat-
ents on fair and reasonable terms, any licensee (or affiliate) may add
essential patents to the joint licence on the same terms and conditions
as other patent holders. But, if a licensee chooses not to do so, it agrees
to grant back a licence similar in scope to the joint licence rights granted
to the licensee on fair and reasonable terms under any essential patents
that the licensee and its affiliates may own. In addition, a clear, up-to-
date list of licensed patents is maintained, and in the interest of includ-
ing as much essential IP as possible for licence convenience, the joint
licence must remain open for the continuing submission, evaluation
and inclusion of essential patents.

Professional management
The licensing administrator provides a seamless worldwide connec-
tion among patent owners, users and technology. This requires a
financially sound and motivated organisation with expertise in iden-
tifying joint licensing products the market can use; building con-
sensus among fiercely independent patent holders each with its own
expectations of value; the development of joint licence products that
meet patent holders’ interest in a reasonable return and the interest
of the marketplace in access to fundamental technology under fair,
reasonable terms; IP, anti-trust, contract drafting and administration
and taxation; licensing and marketing; website management; trans-
action fulfilment and auditing; and international tax mitigation and
reconciliation.

2.4 Biopharma and genetics: Where is the problem?

Since inception, MPEG LA has evangelized about the utility of the
MPEG LA® Licensing Model to address patent thickets in industries
outside of consumer electronics, telecommunications, computer and
related industries. With expertise also in biopharma and genetics,
MPEG LA has actively tried to identify problems there in which the
MPEG LA licensing model may provide a solution and has written
38 Lawrence A. Horn

articles7 and attended worldwide conferences8 in pursuit of that objec�

tive. Based on research commissioned by MPEG LA,9 biopharma and
genetics differ from consumer electronics, telecommunications, com-
puter and related industries in ways that alter the value equation and
therefore, may affect the feasibility of one-stop technology platform
licensing:

Standards
Biopharma and genetics are not largely standards-driven.

Interoperability
In biopharma and genetics, interoperability and non-exclusivity may be
desirable and appropriate for early-stage research (upstream �development)
technology that is ready to use, and certain diagnostic applications, but
the value of upstream development is limited by research exemption,10
difficulty of tracking infringement violations and lack of reach-through
patent claims11 that limit patent values.12 In general, the business–legal
ecosystem supports an environment in which academic institutions do
basic research, biotech companies are in the target business, pharma-
ceutical companies conduct clinical trials and commercialize, and the
law protects each in its own sphere. Even generic manufacturers are

7
╇ Horn, L. ‘Alternative approaches to IP management: One-stop technology platform
licensing’, 9(2) Journal of Commercial Biotechnology, January 2003, 119–127.
8
╇ Lee, P. ‘Alternative one-stop platform technology patent licenses’, Presentation at the
Gene Patents and Clearing Models workshop sponsored by the Fund for Scientific
Research (FWO, Flanders, Belgium), EuroGentest, the Centre for Intellectual Prop-
erty Rights and the Centre for Human Genetics, K.U. Leuven, Leuven, Belgium,
8€ June€ 2006; Horn, L., ‘Alternative one-stop platform technology patent licenses’,
Presentation at the OECD Workshop on Collaborative IPR Mechanisms€ – Patents
Pools, Clearinghouses, Washington, DC, 8–9 December 2005; Horn, L. ‘Patent
pools and business’ Panel Presentation at Licensing Executives Society International
Conference, Paris, France, 29 March 2004; Horn, L., ‘Novel approaches to IP man-
agement: one-stop technology platform licenses’, Presentation at the OECD Work-
shop Genetic Conventions, Intellectual property Rights and Licensing Practices,
Berlin, Germany, 24 January 2002.
9
╇ The research was conducted by Campbell Alliance Group, Inc. of Raleigh, NC in
spring 2005.
10
╇ Merck KGaA v. Integra Lifesciences, Ltd., 545 U.S. US 193 (2005), Whittemore v. Cut-
ter, F. Cas. 1120 (C.C.D. Mass. 1813), The 1984 Drug Price Competition and Patent
Term Restoration Act, Pub. L. No. 98–417, 98 Stat. 1585.
11
╇ Univ. of Rochester v. G.D. Searle & Co., Inc., 249 F. Su 2d 216 (W.D.N.Y. 2003), aff’d,
358 F.3d 916 (Fed. Cir. 2004), cert. denied, 543 US 1015 (2004).
12
╇��������������������������������������������������������������������������������The so-called Cohen-Boyer patents for recombinant DNA and a patent for polymer-
ase chain reaction (PCR) techniques for amplifying specific DNA segments have
proved valuable despite certain of these limitations.
 Case 1. The MPEG LA® Licensing Model 39

permitted by law to start their testing before patents expire in order to

shorten lag time to market.

Branding
In consumer electronics, telecommunications, computer and related
industries, the same technology has many users, and it is branding
that creates value. But, patent pool licences that do not offer serious
�alternatives to bilateral licences are not valued by the marketplace.
In �biopharma and genetics, IP is the value, and exclusivity at the end
(downstream development) part of the therapeutic product development
chain is key.

Alternatives
In biopharma and genetics, a potential licensee faced with royalty-
stacking issues often pursues less expensive opportunities, invents
around the problem, ignores it at its own risk, waits and/or uses other
tools such as public databases.13

Litigation
Litigation for infringing use of early research tools does not appear
to be a widespread occurrence in biopharma and genetics – at least
not€yet.

2.5 Conclusion
The MPEG LA® Licensing Model has proven utility where there is
a problem to be solved. As in other industries, to identify problems in
biopharma and genetics, one must look to where the market’s need for
ease of access and avoidance of conflict intersect.
First, there must be a market need by many users for IPRs held by
multiple owners of interdependent patents covering parts of a prod-
uct, manufacturing method or process in a defined application or field
of€use.

╇ The SNP Consortium making available single nucleotide polymorphisms (SNPs) and
13

an SNP map is one example. See Grassler and Capria, ‘Patent Pooling: Uncorking a
technology transfer bottleneck and creating value in the biomedical research field,’
9(2) Journal of Commercial Biotechnology, January 2003, 113–14.
40 Lawrence A. Horn

Second, incentives and expectations must be balanced for patent

owners, licensees and licensing administrator and in the public inter-
est of expanding innovation. Patent pool licences that do not offer a
serious alternative to bilateral licences will not be valued and will not
be profitable. In the event of a compulsory licence, there may be no
alternative.
Third, the problem must be such that professional patent pool licens-
ing administration – in the form of proactive pool licence development,
licensing and marketing efforts, proven royalty disbursement infra-
structure and critical mass volumes – is required to solve it. Patent pools
around targets (e.g. signalling protein or cellular surface protein path-
ways for purposes of developing agonists to stimulate desirable reac-
tions or antagonists to block undesirable ones) where researchers could
be granted licenses for a broad range of associated patent thickets may
offer one such opportunity.14 Diagnostic genetics may offer another.
Drug structure platforms common to a wide array of drugs may offer
yet another.15
Where the market’s need for ease of access and avoidance of conflict
intersect and there is a problem in need of an appropriate solution, the
MPEG LA® Licensing Model is available to assist.

R eferences
Grassler and Capria, ‘Patent pooling: Uncorking a technology transfer
Â�bottleneck and creating value in the biomedical research field’, 9(2)
Journal of Commercial Biotechnology, January 2003, 113–14
Horn, L. ‘Alternative approaches to IP management: One-stop technology
platform licensing’, 9(2) Journal of Commercial Biotechnology, January
2003, 119–127
â•… ‘Alternative one-stop platform technology patent licenses’ presentation at
the OECD workshop on collaborative IPR mechanisms – patents pools,
clearinghouses’, Washington, DC, 8–9 December 2005
â•… ‘Patent pools and business’, Panel presentation at Licensing
Executives Society International Conference, Paris, France,
29 March 2004
â•… ‘Novel approaches to IP management: One-stop technology platform
licenses’, Presentation at the OECD Workshop Genetic Conventions,
Intellectual property Rights and Licensing Practices, Berlin, Germany,
24 January 2002

14
╇ See also Grassler and Capria, ‘Patent Pooling: Uncorking a technology transfer
bottleneck and creating value in the biomedical research field,’ 9(2) Journal of Com-
mercial Biotechnology, January 2003, 115.
15
╇ Horn, L., ‘Alternative approaches to IP management: One-stop technology platform
licensing,’ 9(2) Journal of Commercial Biotechnology, January 2003, 119–127.
 Case 1. The MPEG LA® Licensing Model 41

Lee, P. ‘Alternative one-stop platform technology patent licenses’,

Presentation at the Gene Patents and Clearing Models workshop
sponsored by the Fund for Scientific Research (FWO, Flanders,
Belgium), EuroGentest, the Centre for Intellectual Property Rights
and the Centre for Human Genetics, K.U. Leuven, Leuven, Belgium,
8€June 2006
Shapiro, C., ‘Navigating the patent thicket: cross licenses, patent pools and
standard setting’, http://haas.berkeley.edu/~shapiro/thicket.pdf
3 Case 2. The SARS case
IP fragmentation and patent pools

Carmen E. Correa

3.1 Introduction
In the last ten years diverse entities have filed for patents in the field
of genomics. The race for patenting DNA sequences started around
1980 growing steadily until reaching its peak by the late nineties.
Nowadays, the race seems to have slowed down and the number of
patents actually granted in the field of genomics is not significantly
high in proportion to the number of applications.1 However, des-
pite of the possibility that the patenting of DNA decreases due to
the increase of patenting thresholds and, the fact that many patent
applications are dropped as they prove to lack commercial viability
(30% of US patents granted by the 1990s were abandoned by 2005), 2
the amount of patents claiming DNA seems still relevant enough to
raise concerns regarding access to the covered technology for further
development.
The entities filing patents on DNA sequences range from big
pharmaceutical companies to academic institutions. This diversity
has resulted in IP fragmentation (one technology/many owners). This
fragmentation has originated different concerns and controversy as to
whether it represents a problem to R&D and how it may affect public
health.3
This paper briefly explains the effects of IP fragmentation. It con-
tinues with the presentation of patent pools as a solution to the negative
effects of IP fragmentation. Finally, it discusses whether a patent pool
represents an option for the SARS case.

1
╇ Hopkins, M. et al., ‘DNA patenting: the end of an era?’ 25(2) Nature Biotechnology,
February 2007,185–7.
2
╇ Hopkins, ‘DNA patenting: the end of an era?’, 2007.
3
╇ Verbeure, B., ‘Patent pooling for gene-based diagnostic testing. Conceptual Â�framework’,
see Chapter 1 of this volume.

42
 Case 2. The SARS case 43

3.2 IP fragmentation
IP fragmentation has an important economic impact in business: as much
as the needed technology has become more fragmented, the �revenues
decrease. The erosion of revenues is due to licensing cost and royalty
stacking.4 In summary, “Developing commercial biomedical products
requires access to many different IP rights and negotiating access with
different patent owners is prohibitively difficult and costly.”5
The fragmentation of IP rights may create several different problems
in the R&D of health solutions. It may frustrate or delay development
of products or, the cost of resolving the IP landscape may result in more
expensive products.6
Moreover, the risk of a blocking position arises with IP fragmenta-
tion if one of the essential technologies is licensed on exclusive terms
so third parties cannot have access to part of the technology deemed
necessary to manufacture a product.7,â•›8,â•›9,â•›10

3.3 Patent pool as a potential solution

Among other proposals, the concept of patent pools has been analyzed as
a potential solution to the negative impact of IP fragmentation. However,
in the area of biotechnology there are very few operational examples.
�
Some of the patent pool options that have been put in practice to
solve IP fragmentation problems are the so-called “force cooper-
ation” and “cooperative pooling”.11 Force cooperation represents pools
formed via government intervention and has the disadvantage to dis-
courage innovation. The idea of patent rights aims to create an advan-
tage for the inventor to exclude others from practicing its invention.
However, when inventors cannot have the autonomy to decide in what

╇ 4
╇ Verbeure, see Chapter 1 of this volume.
╇ 5
╇ Gaule, P. ‘Towards Patent Pools in Biotechnology?’, 2(2) Innovation Strategy Today,
2006, 123–34.
╇ 6
╇ Simon, J. ‘Patent Pools in Biotechnology setting a precedent with SARS’, OECD
Workshop on Management of IPR 8 December, 2005.
╇ 7
╇ Verbeure, see Chapter 1 of this volume.
╇ 8
╇ Simon, J. ‘Patent Pools in Biotechnology setting a precedent with SARS’.
╇ 9
╇ Goldstein, J. et al. ‘Patent pools as a solution to the licensing problem of diagnostic
genetics. United States and European perspectives’. Drug Discovery World. Spring
2005. 87–91.
10
╇ Simon, J. et al. ‘Managing severe acute respiratory syndrome (SARS) intellectual
property rights: the possible role of patent pooling’, 83(9)Bulletin of the World Health
Organization, September 2005, 707–10.
11
╇ Krattiger, A. et al. ‘Intellectual property management strategies to accelerate the
development and access of vaccines and diagnostics: case studies on pandemic influ-
enza, malaria and SARS’, 2(2) Innovation Strategy Today, 2006, 67–122.
44 Carmen E. Correa

type of �agreement they may engage, such advantage may no longer be

granted and innovation loses incentive. Cooperative pools, on the other
hand, are formed on a voluntary basis by IP owners to maximize the
advantage of patent rights, with the benefit that they create incentive to
�innovation and, also it facilitates entry to the market and cost reduction
by increasing competition.12
Lessons can be learned from the successful experiences in the DVD-
ROM and DVD-Video industry of cooperative patent pools formed
around 1997.13
In the biotechnology industry, where the IP fragmentation landscape,
may result in very high cost or, even in a barrier to development, a patent
pool arrangement can facilitate downstream development because the
companies that need to assemble technology from several IP owners
would have a “one stop shop”14 to license all the essential technology to
develop their products.
The one stop shop results in a reduction of their licensing transaction
cost, and eliminates the risk of a blocking position as the pool clears
blocking scenarios.

3.4 The SARS case

Now, let’s explore whether a pool arrangement is an option to resolve
the SARS IP fragmentation.
In 2002, when the first outbreak of SARS happened, the WHO set
up a network among several institutions to determine the cause of the
disease. As a result, several of those institutions and other entities filed
patent applications to cover part or the whole genetic sequence of the
SARS-coronavirus.15

12
╇ Simon, J. et al ‘Managing SARS intellectual property rights: the possible role of
patent pooling’. Also, Krattiger, A. ‘IP management strategies to accelerate the devel-
opment and access of vaccines and diagnostics: case studies on pandemic influenza,
malaria and SARS’.
13
╇ Krattiger, A. ‘IP management strategies to accelerate the development and access
of vaccines and diagnostics: case studies on pandemic influenza, malaria and
SARS’. Also see, Gaule, P. ‘Towards Patent Pools in Biotechnology?’; Simon, J. et al.
‘Managing SARS intellectual property rights: the possible role of patent pooling’.
14
╇ Krattiger, A. ‘IP management strategies to accelerate the development and access of
vaccines and diagnostics: case studies on pandemic influenza, malaria and SARS’.
Also see, Gaule, P. ‘Towards Patent Pools in Biotechnology?’; Simon, J. ‘Managing
SARS intellectual property rights: the possible role of patent pooling’; Verbeure, see
Chapter 1 of this volume.
15
╇ Simon, J. et al. ‘Managing SARS intellectual property rights: the possible role of
patent pooling’.
 Case 2. The SARS case 45

These patents have been named “primary” patents because such pat-
ents most likely will be needed to produce a large range of products for
SARS.16 Also, many other patent applications have been filed for differ-
ent aspects of the SARS technology to cover diagnostic, antivirals etc.
that most likely will need to be combined with the technology covered
by the primary patents.17
The uncertainty over patent rights represents a challenge to product
development because companies willing to develop any SARS-related
product need to deal with several IP applicants holding primary patents,
but they do not know from which they will get a license, or if they will
require to license from all such patent holders. This uncertainty adds
to the complexity to assemble a license, which translates in additional
costs and time to the product development. Together with the challenge
to decide whether to invest at such a high cost when they are not even
sure whether a market will develop for their products18 – no significant
outbreaks since 2003 – setting up a patent pool is a real challenge.
This uncertainty may remain for years, delaying development that
could help us to be prepared efficiently for any next outbreak.
However, if a patent pool is arranged, everyone in the economic-
Â�development chain wins in what can be called a “win-win-win” situation:19
1.╇ Licensors, who will close deals with licensees, in a manner that allows
access in a non discriminatory basis to all interested licensees. Besides,
blocking positions are cleared and infringement litigation reduced.
Also, IP holders will license among themselves the IP, which allows
them to continue research in the field without overlapping efforts.
2.╇ Potential licensees will reduce their licensing transaction cost and
have access to the technology they need to develop a product, giving
the manufacturers tools to innovate and compete downstream.
3.╇ And, finally, public health is also better off because solutions to
SARS can be efficiently brought into the market.
To form a patent pool several steps need to be completed:
1.╇ Identify the relevant IP holders.
2.╇ Negotiations shall lead to the execution of a letter of intent wherein
the parties agree to go forward and to submit their patent applica-
tions in confidence to an independent evaluator.

16
╇ Simon, J. ‘Patent pools in biotechnology setting a precedent with SARS’.
17
╇ Ibid.
18
╇ Simon, J. et al. ‘Managing SARS intellectual property rights: the possible role of
patent pooling’.
19
╇ Simon, J. ‘Patent pools in biotechnology setting a precedent with SARS’.
46 Carmen E. Correa

3.╇ Evaluation by an independent evaluator shall determine which pat-

ents are suitable for the pool (essentiality and complementation of
patents, together with the issue of validity of the patents are the main
core of issues this expert need to clarify). In parallel an operating
model for the pool shall be negotiated and exchanged with the regu-
latory authorities in order to seek for an advisory opinion.
4.╇ Execution of a final agreement for the practical operation of the pool
shall be completed.
In respect of the prospective SARS patent pool the following steps have
been taken:
• ViroScope20 (formerly known as CoroNovative) and other patent
holders (British Columbia Cancer Agency, Centre for Disease
Control and Prevention and Versitech Limited21) that are expected
to hold a significant number of primary patents have been identified.
Subsequently, negotiations led to the execution of a letter of intent;
therefore, the parties have submitted their patent applications to the
independent evaluator to determine their suitability in the SARS
patent pool. In parallel, exchange with the regulatory authorities has
been initiated with the advice of experts in antitrust law. Furthermore,
an operating model is in the process of been discussed.
• Once all this work is completed, a full agreement will be executed
in due consideration of the results of the expert evaluation and the
advisory opinion of the antitrust authorities, and an entity shall be
appointed as the pool manager.
Generally, antitrust guidelines provide similar requirements (the most
relevant of such guidelines have been issued by the DOJ, FTC in the US
and the EU Commission in Europe) with the aim to determine whether
a patent pool is considered pro-competitive. In summary, these guide-
lines basically require that the patent pool:
1.╇ Results in the reduction of licensing transaction cost. Despite the
criticisms associated with the high cost of setting up a patent pool,22
such cost may be lower than the cost associated with individual
licensing, and over-weighted by the avoidance of blocking positions.
In the specific case of SARS, the associated cost of setting up the

╇ ViroScope is a spin-off company of Erasmus MC Rottterdam, www.viroscope.com.

20

╇ Versitech is a company affiliated to Hong Kong University.

21

╇ Gaule, P. ‘Towards patent pools in biotechnology?’ Also see Krattiger, A. ‘IP
22

Management Strategies to Accelerate the Development and Access of Vaccines and

Diagnostics: Case Studies on Pandemic Influenza, Malaria and SARS’.
 Case 2. The SARS case 47

pool is minimized by the fact that most legal and technical advice
has been obtained on a pro bono basis.23
2.╇ Clears blocking position. No exclusive license shall be granted within
and outside the pool, this requirement shall be incorporated in the
patent pool agreement.
3.╇ Permits the dissemination of technology and stimulates innovation.
In the SARS case, this requirement will be fulfilled because cer-
tainly more licensees would be able to have access to the technology
and competition to bring a product, first, into the market would
speed up development.
4.╇ Includes only essential and complementary patent technology.
Determination by the independent evaluator is pending in the SARS
case.
5.╇ Shall not shield any invalid patents. This is one of the criticisms that
frequently arise by the formation of a patent pool. This requirement
can be fulfilled by providing in the patent pool agreement a spe-
cial mechanism to revise the patent pool to exclude any patent that
becomes invalid at any time. This mechanism shall also provide for
the proportional reduction of royalties in lieu of the exclusion of the
patent that has become invalid and the establishment of the fair rate
in consideration to the valid patents that integrate the pool. The
effect for the licensees shall be similar as to the effect that it would
have the termination of any individual license in the assembly of the
technology in absence of the pool, with the advantage that the patent
pool serves as a control, which allows to ensure that the licensing
efforts are limited to the patents that are actually valid and neces-
sary, which overall cost is lower than the sum of individual licenses.
Analyzing the potential SARS patent pool, it seems possible to pre-
dict that most of those guidelines will be covered. And, the SARS case
can be viewed as a unique opportunity for pooling genomic patents
because:
1.╇ The IP holders have agreed to move forward in this direction.
2.╇ The patents have a similar stage of maturity.
3.╇ Legal advice is given by specialized professionals in the relevant
fields, which has facilitated:
(a)╇ the appointment of an independent evaluator to determine essen-
tiality, complementarities and prospective validity of the patents
that would integrate the pool; and

╇ Drinker, Biddle & Reath (patent) and Morgan, Lewis & Bockius (antitrust).
23
48 Carmen E. Correa

(b)╇ the patent pool agreement, including mechanisms in compliance

with antitrust guidelines is being drafted.
4.╇ Several health organizations, such as WHO, Health Canada and
NIH, support the idea.24
Regarding validity of the patents, concerns may arise because the SARS
patent pool is actually a pool of patent applications rather than a pool of
granted patents. However, the fact that patent applications confer to the
applicants, as from the time of publications, the provisional right25 to
royalties, and therefore, licenses can be executed prior to the time such
patents are granted. Similarly, a patent application shall be allowed in
a pool, unless the independent evaluator has reasonable doubts to pro-
pose exclusion of a patent application from the pool, as far as the pool
agreement provides the proper mechanism to exclude such technology
upon the decision not granting the corresponding patent, or its invali�
dity is declared, or the decision of granting the patent limits its claims
to those that make the patent no longer compatible with the pool (e.g.
lack of essential and complementary characteristics). The solution shall
be similar as to the case that a valid patent in the pool is declared invalid
upon its challenge. Therefore, any concerns regarding whether or not a
patent pool can be formed by patent applications may seem irrelevant.

3.5 Conclusions
The concept of patent pools may be a solution to IP fragmentation, but
still difficult to determine whether it will be an attractive option for the
biotech industry.26 Specific issues arise due to the characteristics of the
biotech industry. Although, I will not further discuss these issues it is
worth mentioning one important one: contrary to the electronics indus-
try, there are no standards to comply with, which make it particular
difficult to determine which patents are essential and complementary.
However, some attempts exist to provide standards in the area of diag-
nostics which may facilitate the task in such an arena.27
Also, the valuation of a company in the biotechnology industry
depends heavily on its IP, which is of particular relevance in the case of
small companies or start-ups. This makes companies very cautious to

24
╇ Simon, J. et al. ‘Managing SARS intellectual property rights: the possible role of
patent pooling’.
25
╇ 35 USC §§154 (US) and similar provision exists in other jurisdictions.
26
╇ Verbeure, see Chapter 1 of this volume.
27
╇ Verbeure, see Chapter 1 of this volume. Also see, Goldstein, J. ‘Patent pools as a solu-
tion to the licensing problem of diagnostic genetics. US and European perspectives’.
 Case 2. The SARS case 49

enter into arrangements that in their view may compromise the valu-
ation of the company.28
Finally, patent pools may not be a solution for all IP fragmentation
cases, but they represent a suitable solution in many cases and are worth
exploring; and, very likely, could be a solution to the SARS IP land-
scape as has been explained earlier. This experience would also serve
as a valuable precedent and may promote consideration of changes to
adapt legal guidelines to the specific needs of the industry that may
prove necessary in the course of its implementation.

R eferences
Hopkins, M.; Mahdi, S.; Patel, P & Thomas, S. ‘DNA patenting: the end of
an era?’, 25(2) Nature Biotechnology, February 2007. www.nature.com/
naturebiotechnology
Gaule, P. ‘Towards patent pools in biotechnology?’, 2(2) Innovation Strategy
Today, 2006, 123–34 www.biodevelopments.org/innovation/index.htm
Goldstein, J.; Ebersole, T.; Guthrie, M.; Hirschfeld, A. & van den Broek, B
‘Patent pools as a solution to the licensing problem of diagnostic genetics.
United States and European perspectives’, Drug Discovery World, Spring
2005, 87–91 www.rjcoms.com/data/pdfs/4patent%20pools.pdf
Krattiger, A., Kowalski, R., Eiss, R. & Taubam, A. ‘Intellectual property
management strategies to accelerate the development and access of
vaccines and diagnostics: case studies on pandemic influenza, malaria
and SARS’, 2(2) Innovation Strategy Today, 2006, 67–122. www.
biodevelopments.org/innovation/index.htm
Simon, J. ‘Patent pools in biotechnology setting a precedent with SARS’,
OECD workshop on management of IPR, 8 December 2005.
Unpublished material supplied by the author
Simon, J., v Claassen E., Correa, C. & Osterhaus, A. ‘Managing severe acute
respiratory syndrome (SARS) intellectual property rights: the possible
role of patent pooling’, 83(9) Bulletin of the World Health Organization,
September 2005, 707–10
Verbeure, B., ‘Patent pooling for gene-based diagnostic testing. Conceptual
framework’, Chapter 1 of this volume

╇ Gaule, P. ‘Towards patent pools in biotechnology?’

28
4 Critical analysis of patent pools

Jorge A. Goldstein*

4.1 Introduction: Are biotech patent thickets real?

As is well demonstrated by Verbeure,1 Horn2 and Correa,3 the use of
patent pools in biomedicine and biotechnology is in its infancy. The
chapters by Verbeure and Horn especially, as well as publications of
others,4 sometimes appear to reflect more a premonition of problems
to come than an existing paralysis of commerce caused by intractable
patent thickets. These expositions at times seem less driven by a need to
provide an immediate solution to frustrated marketing constituencies
mired in stacked royalties and unavailable licenses, than an academic
estimate of how time-proven solutions to thickets (learned primarily
in the consumer electronics field) may be applied to the new world of
ge�netics and molecular medicine.
Yet the problems of patent thickets in the field of commercial biotech-
nology are real. The Golden Rice problem, as pointed out by Verbeure,5
was not imaginary or academic. Potrykus charged right ahead
with the genetic engineering of rice so as to enrich it in ß-Â�caroÂ�tene,
apparently oblivious to the existence of any IP rights – only to come
to the end of his successful research and find out that there were
�seventy patents belonging to thirty-two companies that would poten-
tially block �commercialization! The fact that in this case an ingenious
mixed humanitarian/mercantile solution was found is a testimony to

*
╇ The author wishes to thank Christine Formas Norris for her able assistance in the
preparation of this chapter.
1
╇����������������������������������������������������������������������������������� Verbeure, B., ‘Patent pooling for gene-based diagnostic testing. Conceptual frame-
work’, see Chapter 1 of this volume.
2
╇ Horn, A.H., ‘Case 1. The MPEG LA® Licensing Model. What problem does it
solve€in biopharma and genetics’, see Chapter 2 of this volume.
3
╇ Correa, C.E., ‘Case 2. The SARS case. IP fragmentation and patent pools’, see
Chapter€3 of this volume.
4
╇ Ebersole, T. J., Guthrie, M., and Goldstein, J. A., ‘Patent pools as a solution to the
licensing problems of diagnostic genetics’, 17 Intellectual Property & Technology Law
Journal, Jan. 2005, 1–8.
5
╇ Verbeure, see Chapter 1 of this volume.

50
 Critical analysis of patent pools 51

the creativity of the individuals involved. The inventors assigned their

IP to one assignee, which acquired other needed IP from third par-
ties, and then gave back to the inventors a humanitarian license with
the right to sublicense public research institutions and low-income
farmers in developing countries. The assignee retained commercial
rights so as to produce Golden Rice as a nutraceutical in the devel-
oped world, although at the time of writing, it has no plans to com-
mercialize.6 It is not to be expected that such ingenious solutions will
also be available or that the players involved will act in such smooth
unison when we are dealing in other, more competitive, areas of mod-
ern biotechnology.
The SARS virus problem described by Correa7 is particularly real€–
and has an additional twist to that of Golden Rice. The interested
�constituencies in this case carried out their IP due diligence ahead of
completing the science8 – apparently having learned from Potrykus not
to wait until the last moment. They then found out how fragmented
the IP would be once patents started issuing from the myriad of SARS
patent applications on file.9 Indeed the SARS example shows that the
uncertainty of who would own what patent rights at the end of the day
provided an additional impetus to think about and attempt to �create
a€patent pool.10 As Correa points out, the SARS pool seems to be com-
posed primarily of pending patent applications, not issued patents – and
she concludes that this fact ‘seems irrelevant’.11
I cannot help, however, but warn that trying to use a patent pool
to settle potential multi-party interferences in the US is a task to be
approached with great care, lest the pool ends up containing patents
that are not based on the first to invent principle, as is required under
US patent law.12 The danger of a collusive interference settlement would
arise by deciding arbitrarily, i.e., not based on the facts of who was the
first to invent, which patent applications (and eventual patents) will go
into the pool and which ones will not. In order to prevent such a problem
it would be advisable to establish a formal mechanism to elucidate who
invented first, and then to pool the ‘winners’. The ‘losing’ applications
would then be abandoned and neither become patents nor become part
of the pool. This would make it more likely that the actual settlement
and consequent formation of the pool will survive a challenge in court
by a third party who refuses to take a license from the pool and gets sued
for patent infringement. If the pool contains an invalid patent – arising

6
╇ www.goldenrice.org/Content2-How/how9_IP.html.
7
╇ Correa, see Chapter 3 of this volume. 8
╇ Ibid. 9
╇ Ibid.
10
╇ Ibid. 11
╇ Ibid. 12╇ 35 USC §102(g) (2007).
52 Jorge A. Goldstein

out of a commercially (not legally) driven decision to include it in the

pool – the defendant could then demonstrate two things in court. First,
that the invention was invented by one other than the patent holder and
invalidate the patent. Second, that the interference was settled collu-
sively, and that the resulting pool may – as a result – violate the antitrust
laws.13 By using a formal priority determination and including only the
patent application winners, the pool can avoid such problems.
Finally, I agree with Correa that there may be numerous attempted
projects involving fragmented IP rights that have never been publicized
in that they were aborted at the due diligence stage. I have anecdotal
evidence from commercial enterprises which, having determined that
a thicket existed with multiple licenses needed, stopped further work
towards the product stage. Such accounts abound in the field of gene
microarrays, where the existence of one or more unlicensable gene pat-
ents have apparently prevented the production and commercialization
of an array containing multiple genetic sequences useful for the diagno-
sis or evaluation of patients’ gene profiles.
Thus I conclude that the thicket problems are real, not academic.

4.2 The case of polymutationally correlated

genetic€diagnostics
In 2005, Verbeure and I working independently, reached the identical
conclusion – noted in her chapter – that the problems of thickets in
biomedicine would be most acute in the area of genetic diagnostics of
poly mutationally correlated diseases.14,â•›15 These are diseases where the
predisposition to disease is correlated to multiple genes and their muta-
tions. (It should always be remembered that a correlation between gene
mutation and disease is not the same as a cause and effect correlation.
In other words, the diagnostic correlation – no matter how useful – is
not always determinative of aetiology, i.e., of the origin of the disease.)
If multiple patent owners hold patents over different mutational cor-
relations, and all of them are necessary for a successful test, then a
thicket may appear. Verbeure is correct that in situations like the diag-
nosis of breast cancer correlated to BRCA-1, where there is one main
exclusively licensed patent on the gene and its correlation, a patent pool
is of little if any aid.16 If the patent holders (University of Utah and its

13
╇ Medimmune, Inc. v. Genentech, Inc., 129 SCt 764 (2007) (which, although not in the
context of a patent pool, is an example of an allegation by a third party that an anti-
trust violation had occurred during the settlement of an earlier interference).
14
╇ Ebersole, et al., ‘Pools as a solution to licensing problems’.
15
╇ Verbeure, see Chapter 1 of this volume. 16╇ Ibid.
 Critical analysis of patent pools 53

licensee Myriad Genetics) refuse to provide sublicenses to others who

may want to enter the market, they are free to do so under the antitrust
laws of the United States – pool or no pool.17
Verbeure’s classification18 into vertically oriented and horizontally ori-
ented thickets is insightful, but does not shed more light on how to solve
the ultimate problem of correlation between disease and multiple muta-
tions – whether they are all around the same gene and its variations
(‘vertical’), or around multiple different genes (‘horizontal’). If patent
holders, each holding one of multiple mutational correlations, whether
vertical or horizontal, go at it alone and refuse to deal with each other
or a pool, there is little a potential market entrant can do to in order to
crack the collective impasse.

4.3 Problem of patent owner holdouts

This brings me to the main focus of this chapter: the problem of patent
owner holdouts in biotech pools. It is my belief, apparently shared by
Horn,19 that the holdout problem is uniquely acute to this field. I€hope
to demonstrate below, however, that medically driven standards20
might be fruitfully used in the formation of valid biotech pools and
that these may somewhat ameliorate the holdout problem. In addition,
a recent decision from the United States Supreme Court, eBay, Inc. v.
MercExchange, LLC 21 (‘eBay’), may also have a positive impact on the
problem. Thus, medically driven standards, when taken together with
the eBay decision, may lead to a more collaborative rather than litigious
environment in the patent thickets of biomedicine.
A holdout is a patent owner who by choice remains outside, or inad-
vertently gets left out, of a patent pool.22 If the holdout is inadvertent,
then once discovered, he may be invited to join the pool and will do so.
His role is then the same as that of all others who have joined the same
pool, i.e., he is entitled to a share of the royalties, as well as (if he wants
to manufacture) cross licenses from other pool participants. If, how-
ever, the holdout is purposeful the situation is dramatically different.
A holdout by choice may have decided to go at it alone, especially if he

17
╇ Carborundum Co. v. Molten Metal Equipment Innovations, Inc., 72 F 3d 872 at 880
(Fed. Cir. 1995).
18
╇ Verbeure, see Chapter 1 of this volume. 19╇ Horn, see Chapter 2 of this volume.
20
╇ Ebersole, T., Guthrie, M., and Goldstein, J. A., ‘Patent pools and standard setting in
diagnostic genetics’, 23 Nature Biotechnology, Aug. 2005, 937–8.
21
╇ eBay, Inc. v. MercExchange, LLC, 126 SCt 1837 (2006).
22
╇ George, G. D., ‘Note: what is hiding in the bushes? eBay’s effect on holdout behavior
in patent thickets’, 13 Michigan Telecommunications and Technology Law Review, 2007,
557–76, 559.
54 Jorge A. Goldstein

holds a patent that is judged to be essential to the functioning of the

pool. Such a purposeful holdout has the ability to ‘hold up’ formation
and/or implementation of the pool. He cannot normally be compelled
by private parties to either join the pool or grant them or others an indi-
vidual license.
In the US, one major exception to the rule of no compulsion is when
the Government has jurisdiction to intervene. There are two US stat-
utes which contemplate intervention by the US Government in com-
pelling an involuntary license to a patent. The first one is related to
Government procurement in which the Government would take the
holdout’s IP and force him to grant a compulsory license to the pool
or to another private third party who would then manufacture the
invention ‘for the United States’.23 The Government must then pro-
vide the holdout ‘reasonable compensation’ so as not to violate the 5th
Amendment of the US Constitution.24 A private party who wishes to
obtain a license from the same patent holder cannot avail itself of this
remedy – unless he becomes a Government contractor.
The second statute which gives the US Government the abil-
ity to force a license is related to the commercial development of
�Government-funded inventions made at universities or other recipi-
ents of US federal money – the so called Bayh-Dole Act.25 The US
Government may require the licensee of an invention made with federal
funds to grant a sublicense if such ‘action is necessary to alleviate health
or safety needs which are not reasonably satisfied by theâ•›…[licensee]’.26
A private party cannot avail itself of this remedy unless he petitions the
Government to ‘march in’ and force a license or sublicense. Although
parties have tried, this provision of the law has never been enforced.
Other than the intervention of the Government then, compulsory
licenses – or ‘forced cooperation’ as called by Correa27 – have not been
historically available in the US until the eBay case (see below). The
purposeful holdouts have remained free to ignore requests for licenses
or requests that they join the pool. The optimistic calculation of a hold-
out – especially if the pool and its standards have already been estab-
lished – is that he might be able to obtain direct royalties from the
licensee that are higher than the secondary distribution royalties he
would receive from the pool from the royalties paid to the pool by the
licensee.28 Faced with a holdout, a licensee of the pool might calculate

23
╇ 28 USC § 1498 (2007). 24╇ US Const. amendment V.
25
╇ The Bayh-Dole Act of 1980, 35 USC §§ 200 et seq. (2007).
26
╇ 35 USC § 203(a)(3) (2007). 27
╇ Correa, see Chapter 3 of this volume.
28
╇ George, ‘eBay’s effect on holdout behavior’, 560.
 Critical analysis of patent pools 55

what are known as ‘switch-over’ costs – i.e. how much would it cost the
licensee to switch over from the pool standard to another methodology
or product? The holdout hopes to obtain directly from the licensee a
royalty that is less than the switch-over cost, and yet will let the holdout
do much better than his fellow patent holders who have joined the pool
and are receiving only secondary distributions.

4.4 Different cultures of biotech and consumer electronics

Patent holders in the consumer electronics world generally have a hard
time going at it alone and becoming holdouts. Patent pools in consumer
electronics are combinations of essential and complementary IP held by
interdependent players. The pools generally organize around industry
standards. Such standards inform the universe of patent holders as to
the essentiality and/or complementarity of patents to be added to the
pools. The standards are, as Verbeure points out,29 arbitrary and not
functional, in the sense that, for example, there is nothing a priori func-
tional about the diameter of a CD disk being 120 mm, or its standard
sampling rate being 44.1 kHz. Consumer electronics manufacturers,
however, truly need each other in order to create a market for their
products (e.g. CD players that will play standard CDs). These manu-
facturers need to agree on a common language to avoid the Babel-like
consequences of technical incompatibility. Any one such manufacturer
is like a reluctant synchronized swimmer forced to perform within a
team whose members are his fierce competitors, only because, were he
to get out of the pool or perform a different routine he would be unable
to compete at all, that is, to manufacture or sell products made to the
agreed-upon standards. This acute interdependency of patent holders
in consumer electronics makes holdout behaviour rare, although there
are such examples.30
I believe that when it comes to collaborative behaviour the biotech
industry is quite different than the consumer electronics industry.
Manufacturers in the biotech industry do not operate in a market-
driven environment that forces interdependency among them. Quite

29
╇ Verbeure, see Chapter 1 of this volume.
30
╇ www.ftc.gov/opa/1996/06/dell2.htm (From the 1996 Federal Trade Commission
Consent Agreement with Dell Computer Corporation it appears that, during the
standard-setting process, VESA [Video Electronics Standard Association] asked its
members to certify whether they had any patents, trademarks or copyrights that con-
flicted with the proposed VL-bus standard; Dell certified that it had no such intel-
lectual property rights. After VESA adopted the standard – based, in part, on Dell’s
certification – Dell sought to enforce its patent against firms planning to follow the
standard.)
56 Jorge A. Goldstein

the contrary, as Horn points out31 the value in biotech is driven not so
much by market formation but by intellectual property and exclusivity.
Especially in the biopharmaceutical sector, players are confronted by
large costs and long regulatory times, and are not inclined to pool their
IP with that of others who may not have invested the large sums required
for drug or diagnostic approvals. The biopharma culture is much more
like that of the solitary long-distance runner with one winner and mul-
tiple also-rans, than that of a team of synchronized swimmers.

4.5 Use of medically driven standards in

genetic diagnostics
I have suggested that it is nevertheless possible to envision the use of
medically driven standards in the formation of patent pools in genetic
diagnostics.32 Such standards might be established by respected health
organizations such as WHO, PAHO, NIH, or the American College
of Medical Genetics (ACMG) as a means to maximize the scientific
efficiency and operability of genetic diagnostic tests across a wide pan
ethnic population. For example, the ACMG has issued a policy state-
ment recommending a ‘standard’ panel of twenty-five mutations for
identifying carriers of Cystic Fibrosis (CF). The standard is that all
CF-causing mutations with an allele frequency of ≥ 0.1%, should be
included in the test so as to make it as widely pan-ethnic as possible.33
The medically driven standards I have proposed do not resolve thick-
ets in the same manner as those of consumer electronics, where the
arbitrary standards force interdependent manufacturers to ‘speak’ the
same language. In contrast, a medical standard informs a ‘best’ medÂ�ical
practice. If a testing service or a test kit manufacturer wishes to offer
the best diagnostic assay in the market it – no matter how reluctantly€–
may need to obtain licenses from its competitors in order to be able to
do so. True, with such a best medical standard there is still an element
of choice. Perhaps the diagnostic service lab is quite willing to offer an
assay that has less than all of the patented mutations because, rather
than being universally applicable, the test could apply only to a sub-
population. In spite of the cultural and commercial differences between

31
╇ Horn, see Chapter 2 of this volume.
32
╇ Ebersole, et al., ‘Pools as a solution to licensing problems’.
33
╇ Grody, W. W., et al., ‘Laboratory standards and guidelines for population-based
Â�cystic fibrosis carrier screening’, 3 Genetics in Medicine, 2001, 149–54; see also
Watson,€M.€S., et al., ‘Cystic fibrosis population carrier population: 2004 revision of
American College of Medical Genetics mutation panel’, 6 Genetics in Medicine, 2004,
387–91.
 Critical analysis of patent pools 57

the consumer electronics and biopharmaceutical industries, however,

I do believe that establishment of a standard for diagnostic testing of
polymutationally correlated diseases will decrease the propensity of the
market leaders to want to go at it by themselves, i.e. to play holdout. I do
believe that most if not all diagnostic labs will still want to offer the best
test possible if it is recommended by respected medical authorities. The
use of a medically driven standard, in addition to solving the holdout
problem, may then also be used in determining essentiality of patents
to a given pool and serve as the organizing principle around which a
diagnostics pool would be formed.

4.6 Patent injunctions and the eBay decision of the

US€Supreme Court
Another reason for some guarded optimism that the biomedical hold-
out problem might be eased is the recent (2006) eBay decision of the
Supreme Court. eBay is the well-known operator of an online auc-
tion service. MercExchange is a provider of online services and holds
a patent on an online auction method.34 MercExchange sued eBay,
asking for a permanent injunction. The lower district Court denied
the injunction€ – almost automatically. The Court of Appeals for the
Federal Circuit reversed and granted the injunction – also almost auto-
matically. The decision of the Court of Appeals was then appealed to
the Supreme Court. The Supreme Court, per Justice Thomas, reversed
the Appeals Court but disagreed with both it and the lower court, and
remanded. In so doing, it stated that injunctions in patent law should
neither be automatically granted nor automatically denied. Analyzing
the need for an injunction in patent law should be done in accordance
with the traditional four-factor test applied by the courts when consid-
ering whether to award permanent injunctive relief in other areas of
the law. Under the four-factor test, a successful plaintiff must demon-
strate: (1) that, absent an injunction, it will suffer irreparable injury;
(2) that remedies available at law (e.g. money damages) are inadequate
to compensate for that injury; (3) that considering the balance of hard-
ships between the plaintiff and defendant, a permanent injunction is
warranted; and (4) that the public interest would not be disserved by a
permanent injunction.35
Public policy and fairness therefore now need to be regularly and
carefully considered by a court before deciding on the entry of a

34
╇ http://mercexchange.com/index.html.
35
╇ eBay, Inc. v. MercExchange, LLC, 126 SCt 1837 at 1839 (2006).
58 Jorge A. Goldstein

�permanent injunction. I conclude that, after the decision in eBay,

permanent injunctions in patent law are no longer automatic, that
in certain instances money remedies will be enough, and that patent
holders who do not manufacture or license may not readily get injunc-
tions. Since the public health is a major ‘public interest’ it would also
follow that patent holders in the health sciences who do not work or
actively license their inventions are now vulnerable to not getting
injunctions.36
What does this mean to a passive patent holder who refuses to bring
his patent into a formed biotech patent pool, i.e. what does this mean to
our holdout? Given that our holdout can no longer count on a perma�
nent injunction, his leverage has decreased. A licensee of the pool facing
the holdout may now have more negotiating ability to reach a separate
license with him, where the royalty – while perhaps higher than what
the licensee is paying to the pool – might be substantially lower than
the switch-over royalty. George, in evaluating holdout behaviour in the
nanotechnology industry after eBay has concluded that eBay ‘tends to
discourage large numbers of holdouts and encourage more complete
patent collections by suppressing the incentive for holdouts to litigate.
Aâ•›…â•›likely outcome is that organizations charged with collecting pat-
ents, setting standards, and creating licensing regimes may become
more numerous and more powerful.’37 George actually speculates that
without automatic injunctions available to holdouts, patent pools in
areas like software or consumer electronics will become powerful car-
tels, and that such a result will not be beneficial.38
It is hard to conclude that in our field of biotechnology, where classic
patent pools are still few, if any, the lack of automatic injunctions avail-
able to holdouts would end up creating a cartel like the ones feared by
George in the software or electronics industries. What is clear, however,

36
╇ There has not yet been a post eBay decision of a lower court in the health sciences. In
areas such as electronics, the lower court decisions have been mixed. For example, in
z4 Technologies v. Microsoft Corp (434 F Supp 2d 437 (E.D. Texas 2006) and in Paice
LLC v. Toyota Motor Corp, 2006 US Dist LEXIS 61600 (E.D. Texas, August 16, 2006)
the lower courts denied permanent injunctions to the plaintiffs in that both z4 and
Paice were primarily licensing entities and the inventions were not to the ‘core func-
tionality’, but, rather, a small component. In contrast, in CSIRO v. Buffalo Technology,
Inc., E.D. Tex. (6:06-CV-324, June 15, 2007) where the patent sued upon dealt with
wireless networks, the court did enter a permanent injunction, even though the plain-
tiff CSIRO is not a commercial entity but the principal scientific research organiza-
tion of the Australian Federal Government, in a manner similar to the United States’
National Science Foundation or National Institutes of Health. Among other factors
analysed, the claimed invention in CSIRO was seen by the court as not merely a ‘small
component’ of the system.
37
╇ George, ‘eBay’s effect on holdout behavior’, 573. 38╇ Ibid., 576.
 Critical analysis of patent pools 59

is that the absence of automatic injunctions is now part of the US

legal scenario. Patent holders of essential or complementary patents€ –
Â�especially non-working patent holders – now need to carefully consider
this uncertainty when planning whether to hold out from a pool or not.

4.7 Conclusions
Medically driven standards, set by international medical bodies,
should be considered when creating a patent pool in genetic diagnos-
tics. Such standards not only assure the legal acceptability of the pool
but provide potential holdouts with a ‘best practice’ that would give
them an incentive to join the pool rather than go at it alone. When
coupled to the lack of automatic injunctions after eBay, a passive IP
holder in ge�netic diagnostics may well decide that his best strategy for
maximizing profits is not to hold out but to jump into the pool, and
try – however reluctantly€– to synchronize his swimming with those of
his team members already in the water.

R eferences
Correa, C.â•›E ., ‘Case 2. The SARS case. IP fragmentation and patent pools’,
Chapter 3 of this volume.
Ebersole, T., Guthrie, M., and Goldstein, J.â•›A ., ‘Patent pools and standard
setting in diagnostic genetics’, 23 Nature Biotechnology, Aug. 2005, 937–8
â•… ‘Patent pools as a solution to the licensing problems of diagnostic genetics’,
17 Intellectual Property€& Technology Law Journal, Jan. 2005, 1–8.
George, G.â•›D., ‘Note: what is hiding in the bushes? eBay’s effect on holdout
behaviour in patent thickets’, 13 Michigan Telecommunications and
Technology Law Review, 2007, 557–76, 559
Grody, W.â•›W., et al., ‘Laboratory standards and guidelines for
population-based cystic fibrosis carrier screening’, 3 Genetics in
Medicine,€2001, 149–54
Horn, L.â•›A ., ‘Case 1. The MPEG LA® Licensing Model. What problem does
it solve in biopharma and genetics’, Chapter 2 of this volume.
Verbeure, B., ‘Patent pooling for gene-based diagnostic testing. Conceptual
framework’, Chapter 1 of this volume.
Watson, M.â•›S., et al., ‘Cystic fibrosis population carrier population: 2004
revision of American College of Medical Genetics mutation panel’, 6
Genetics in Medicine, 2004, 387–91

l egisl at ion

Bayh-Dole Act of 1980, 35 USC §§ 200 et seq. (2007)

35USC §102(g) (2007)
28USC § 1498 (2007)
60 Jorge A. Goldstein

35USC § 203(a)(3) (2007)

US Const. amendment V

c a se l aw

Carborundum Co. v. Molten Metal Equipment Innovations, Inc., 72 F 3d 872 at

880 (Fed. Cir. 1995)
eBay, Inc. v. MercExchange, LLC, 126 SCt 1837 (2006)
Medimmune, Inc. v. Genentech, Inc., 129 SCt 764 (2007)

w ebsi t es

www.ftc.gov/opa/1996/06/dell2.htm
www.goldenrice.org/Content2-How/how9_IP.html
http://mercexchange.com/index.html
Part II

Clearinghouses
5 Clearinghouse mechanisms in genetic
diagnostics
Conceptual framework

Esther van Zimmeren

5.1 Background
Both the existence and exploitation of human gene patents have gained
wide attention. Although the controversy about the eligibility of patents
in the field of human genetics remains, this primarily ethical debate
has largely been ‘outlawed’ by the political international consensus to
allow the registration of such patents as long as the general patenta�
bility requirements are fulfilled. Nevertheless, the voice of opponents
of human gene patents is still regularly heard at various platforms and
echoed in legislative proposals at both sides of the Atlantic.1 It remains
to be seen to what extent this will actually lead to a reopening of the
patentability debate and ultimately amendments in the patent legisla-
tion and granting policies. Some people would probably even argue that
the policy of the patent offices actually already became more restrictive
with regard to gene patents. In this paper I do not explicitly deal with
the desirability of gene patents, rigorous application of patentability
standards and patent scope, although I do recognize that these issues
are intrinsically connected with the subject of this paper. However, as
these topics are not the principal focus of this book, we will start from
the status quo where gene patents have been and are granted globally
and we will focus on the problems that granted patents might create
with respect to their exploitation.
Moreover, clearinghouses are part of a spectrum of solutions which may
remedy the problems described below. Research exemptions, compulsory

1
╇ A recent example is a bill introduced in 2007 in the US House of Representatives
by Congressmen Xavier Becerra and Dave Weldon. The Genomic Research and
Diagnostic Accessibility Act would have added a new section to the US legal code:
‘Notwithstanding any other provision of law, no patent may be obtained for a nucleo-
tide sequence, or its functions or correlations, or the naturally occurring products
it specifies.’ Genomic Research and Accessibility Act, Washington, DC: Library of
Congress, 2007, available at http://thomas.loc.gov/home/gpoxmlc110/h977_ih.xml.

63
64 Esther van Zimmeren

licences and clearinghouses are just three of them. Research exemptions

do not exist in all legal systems and if a research exemption exists, the
scope of protection tends to vary from country to country. Compulsory
licensing provisions exist in most national patent acts and compulsory
licences might also be obtained in exceptional circumstances on the
basis of competition law. However, the grant of a compulsory licence
is a rather extreme measure. Its use is not common and the procedure
generally long and time-consuming. Therefore, compulsory licences do
not seem particularly useful to safeguard �day-to-day freedom to operate.
This paper examines a voluntary measure (clearinghouse)2 while con-
templating the need of some additional features which would guarantee
serious reciprocal engagement in such collaborative endeavours.
The resistance against gene patents actually did not only concern
the patentability as such, but equally concealed dissatisfaction at the
level of exploitation with the incidence of royalty stacking and restrictive
(exclusive) licensing practices of patent holders of (upstream) patents.
These practices can be primarily accounted for by two phenomena: the
(presumed) gradual emergence of patent thickets, on the one hand, and
unilateral refusals to license or unbalanced licensing proposals amount-
ing to clear-cut rejections, on the other hand.
The first phenomenon relates to the fear that the upsurge in patenting
caused by the race on patents by private and public entities in the biomed-
ical sector would lead to a growing omnipresence of patents in genetics
which would inhibit research and access to health care. True, the essence
of innovation in genetics is cumulative investigation: each invention builds
on many previous findings. Public and private entities must thus gain per-
mission of each person that previously contributed to the development of
a certain product or process in order to exploit it and to pursue further
research and development. If there are many patents in the hands of dif-
ferent owners this may ultimately lead to difficulties in bargaining licences
to the patented inventions successfully. This phenomenon has been called
a ‘patent thicket’.3 Every licensor will require the payment of royalties or
upfront licence fees, which ultimately may lead to royalty stacking.
Patent thickets in genetics may disrupt further innovation, because in
genetics substitutes for genetic inventions (such as patented genes) are

2
╇ For another voluntary measure which is part of the spectrum of remedies, the patent
pool, see Verbeure, B., ‘Patent pooling for gene-based diagnostic testing. Conceptual
framework’, Chapter 1 of this volume.
3
╇ Shapiro, C., ‘Navigating the Patent Thicket: Cross Licenses, Patent Pools, and
Standard-Setting’, in Jaffe, A., Lerner, J., Stern, S. (eds.), Innovation Policy and the
Economy, Cambridge, MIT Press, 2001, vol. I, 119–150, available at http://haas.
berkeley.edu/~shapiro/thicket.pdf.
 Clearinghouse mechanisms: conceptual framework 65

often lacking and competitors will therefore often not be able to invent
around those patents. Heller and Eisenberg suggested that this increase
in patents may result in a ‘tragedy of the anticommons’ in biomed-
ical research.4 The high costs involved in locating licensing partners
(‘search costs’), in negotiating licensing conditions (‘bargaining costs’)
and the enforcement of the licensing agreement (‘enforcements costs’)€–
in other words the transaction costs, and the stacking of Â�royalties – may
stand in the way of an agreement.5 This may lead to ‘underuse’ of the
patents concerned.
However, one should note that the consequences of deoxyribonucleic
acid (DNA) patenting may turn out to be more limited than some had
feared. This may be due to the decline in the number of patent applica-
tions, more stringent examination procedures followed by the patent
offices, and the apparent restriction of the scope of granted patents.
Moreover, debates on the patenting in the area of genetics need to
take into account the disparities between patent activity in the US and
elsewhere.6
It was assumed that the emergence of patent thickets in the biomed-
ical field would bar researchers from initiating new projects and com-
panies from continuing R&D in particular areas where they could not
ascertain freedom to operate. However, empirical studies have shown
that as to now the patent thicket has not had the anticipated consider-
able impact, as far as genetics in general is concerned.7,â•›8 Nevertheless,

4
╇ Heller, M.A., ‘The Tragedy of the Anticommons: Property in the Transition from
Marx to Markets’, 111 Harvard Law Review, 1998, 621–688 and Heller, M.A.,
Eisenberg, R.S., ‘Can Patents Deter Innovation? The Anticommons in Biomedical
Research’, 280 Science, 1998, 698–701.
5
╇ Coase, R.H., ‘The Problem of Social Cost’, 3 The Journal of Law and Economics, 1960,
1–44 and Cooter, R. and Ulen, T., Law & Economics, International Edition, Boston-
San Francisco-New York, Pearson Addison Wesley, 2004, at 91–96.
6
╇ Hopkins, M.H., Mahdi, S., Patel, P., Thomas, S.M., The Patenting of Human DNA:
Global Trends in Public and Private Sector Activity, Report for the European Commission,
Brighton (UK), SPRU, 2006, available at www.sussex.ac.uk/spru/documents/patgen_
finalreport.pdf, at ix and 14–35.
7
╇ National Research Council of the National Academies – Committee on Intellectual
Property Rights in Genomic and Protein Research and Innovation, Reaping the
Benefits of Genomic and Proteomic Research: Intellectual Property Rights, Innovation, and
Public Health, Washington, DC, The National Academies Press, 2005, available at
www.nap.edu/catalog/11487.html and Walsh, J.P., Arora, A., Cohen W.M., ‘Effects
of Research Tool Patents and Licensing on Biomedical Innovation’, in Cohen, W.M.,
Merrel, S.A. (eds.), Patents in the Knowledge-Based Economy, Washington, DC, The
National Academies Press, 2003, 285–340.
8
╇ Yet, these studies mainly focus on genetic research. Established companies may be
reluctant to actively pursue licensing policies or even litigation against universities
and research institutes, which might be different in more competitive relationships.
Moreover, growing awareness amongst researchers, strategic enforcement behaviour
66 Esther van Zimmeren

several studies have highlighted that in the field of genetic diagnostics

patent holders are more active in asserting their patents. This appears
to be having an inhibiting effect on research and clinical practice as
some laboratories have ceased to perform tests or refrained from test
development.9 In addition, one might argue – even though the prob-
lem may still turn out to be less urgent also in genetic diagnostics after
more empirical evidence on the existence of patent thickets will have
been gathered10 – that the establishment of patent clearing mechaÂ�
n�isms is desirable for reasons of transparency and legal certainty, as
still researchers in the field may be under the (false) impression that
�intellectual property (IP) rights keep them from research.11 Therefore,
genetic diagnostics may serve as a case study for examining different
patent clearing models as an instrument to facilitate access to and use of
patented genetic inventions. In this respect, in particular patent pools
and clearinghouses have been suggested. This contribution will focus
on clearinghouse mechanisms.
The second phenomenon concerns the situation where a single patent
holder controls all patents/the major patent(s) relevant to for instance
the genetic testing for a particular disease.12 Such a patent owner holds
a dominant position on the market for that particular test. If he would

 y patent holders (including universities), and the proliferating complexity of biomed-

b
ical research might lead to increased patent enforcement in genetics in the future.
National Research Council of the National Academies, ‘Reaping the Benefits’,
at€105–6.
╇ 9
╇ National Research Council of the National Academies, ‘Reaping the Benefits’, at
111; Walpole, I.R., Dawkins, H.J.S., Sinden, P.D., O’Leary, P.C., ‘Human Gene
Patents: the possible impacts on genetics services health care’, 179 Medical Journal
of Australia, 2003, 203–205; Matthijs, G., Halley, D., ‘European-wide opposition
against the breast cancer gene patents’, 10 European Journal of Human Genetics, 2002,
783–4; Merz, J.F., Kriss, A.G., Leonard, D.G.B., Cho, M.K., ‘Diagnostic testing
fails the test’, 415 Nature, 2003, 577–579; Cho, M.K., Illangasekare, S., Waever,
M.A., Leonard, D.G.B., Merz, J.F., ‘Effects of Patents and Licenses on the Provision
of Clinical Genetic Testing Services’, 5 Journal of. Molecular Diagnostics, 2003, 3–8
and Walsh et al., ‘Effects of Research Tool Patents’, 285–340.
10
╇ Our research group is carrying out empirical research concerning the existence of
patent thickets in the field of genetic testing by closely analysing the scope of the rele-
vant patents. For instance: Verbeure, B., Matthijs, G., Van Overwalle, G., ‘Analysing
DNA patents in relation with diagnostic genetic testing’, 13 European Journal of
Human Genetics, 2005, 1–8.
11
╇�������������������������������������������������������������������������������������This last concern may, however, also partially be solved by proper education of bio-
medical scientists on IP, and patents in particular.
12
╇ For example, one patent owner holds the different patents covering the diagnosis of
hemochromatosis. Merz et al., ‘Diagnostic testing fails the test’, at 577–9. Bio-Rad
acquired the patent on the Hereditary Hemochromatosis (HFE) gene after Mercator
Genetics went out of business. The company offers to license laboratories to perform
testing, but at a cost that makes Bio-Rads own, commercial test kit more economic-
ally attractive due to up-front payments and a per test fee of $20 (for two mutations).
 Clearinghouse mechanisms: conceptual framework 67

decide not to grant licences neither for research13 nor for development,
and to exploit the patent autonomously, this might have serious conse-
quences on both research and public health. It could impede further
development of an existing test and research into complementary or
alternative methods of diagnosis. Furthermore, testing will be quan-
titatively limited to the capacity of the patent owner, which will not
necessarily meet the demands of the number of patients. Additionally,
there would be no price competition which might lead to a substan-
tial increase in genetic testing costs and thus a serious drain on funds
of public health services. The medical practice could be dictated by
the single provider without procedures for ensuring quality control and
peer review. And the close link between testing, clinical and counselling
services could be disrupted. Even in the case where the patent owner
would be rather ‘cooperative’ and would issue exclusive licences for a
specific territory and/or a specific type of testing, further research and
the provision of clinical testing services could be seriously hampered.
The situation may be even more urgent, if the patent owner uses his
rights for defensive purposes without even actively exploiting the pat-
ents himself. Competition law on abuse of a dominant position and the
‘essential facilities doctrine’, as well as compulsory licensing mechaÂ�
n�isms established in patent law, might play a role in remedying such
restrictive licensing practices. However, for now these remedies do not
seem very effective in solving this phenomenon as part of short-term
day-to-day licensing strategies. Though, a more detailed examination
of these instruments is outside the scope of this paper, some reference
will be made now and then to competition law and compulsory licens-
ing in the framework of the analysis of the clearinghouse model.
For releasing the market from the burden of patent thickets and prob-
lems related to restrictive licensing practices, the current state of the
patent and competition law lack legal remedies effective and sufficiently
flexible to be used by practitioners. Experts have been discussing vari-
ous solutions. Different national and international advisory organs14

13
╇ In some countries research is exempted from patent infringement. In principle,
researchers would not be obliged to negotiate a license to allow them to carry out
their research. However, the scope of those statutory/non-statutory exemptions var-
ies considerably. See, for instance: Dent, C., Jensen, P., Waller, S., and Webster, B.,
Research Use of Patented Knowledge: A Review, Paris, OECD Directorate for Science,
Technology and Industry, STI Working Paper No. 2006/2, 2006, available at www.
oecd.org/dataoecd/15/16/36311146.pdf.
14
╇ Organisation for Economic Co-operation and Development (OECD), Genetic
Inventions, Intellectual Property Rights and Licensing Practices, Evidence and Policies,
Paris, OECD, 2002, available at www.oecd.org/dataoecd/42/21/2491084.pdf; OECD,
Guidelines for the Licensing of Genetic Inventions, Paris, OECD, 2006, available at
68 Esther van Zimmeren

and experts15 have suggested that a clearinghouse should be set up in

the field of patents related to genetic inventions in order to solve both
the problem of patent thickets and unilateral blocking licensing prac-
tices. However, none of these organizations has precisely defined what
type of clearinghouse would be optimal and how it should function
in practice. In view of the broad interpretation of the clearinghouse
concept and the wide variety of existing clearinghouses, it is impor�
tant to be more precise and to define different types of clearinghouses,
the desirable functions, the organization and the features of a clearing-
house. A typology of five types of clearinghouses will be distinguished
in Section 5.2,16 based on real-life case studies and the excellent papers
of Krattiger,17 who focused on collaborative and technology trans-
fer mechanisms for biotechnology in general, and Graff et al.,18 who
explored an IP clearinghouse for agricultural biotechnology. The other
chapters focus on one particular type of clearinghouse, the royalty
�collection clearinghouse. Section 5.3 deals with copyright collection
societies often referred to as the major example of collective administra-
tion and a source of inspiration for a clearinghouse for patent licensing
in genetics. The major characteristics of copyright collection societies
(CCS), some justifications, the legal framework and the relevant compe-
tition law jurispru�dence will be �provided. This will give some insights

www.oecd.org/dataoecd/39/38/36198812.pdf, para. 41; Human Genome Organisation

(HUGO), Statement on the Scope of Gene Patents, Research Exemption and Licensing of
Patented Gene Sequences for Diagnostics, 2003, available at www.hugo-international.
org/PDFs/Statement%20on%20the%20Scope%20of %20Gene%20Patents,%20
Research%20Exemption.pdf; Nuffield Council on Bioethics, The Ethics of Patenting
DNA, London, Nuffield Council on Bioethics, Discussion Paper No. 932002, 2002,
available at www.nuffieldbioethics.org, and the Australian Law Reform Commission
(ALRC), Gene Patenting and Human Health, Sydney, Australian Law Reform
Commission, Discussion Paper No. 68, 2004, available at www.alrc.gov.au.
15
╇ Krattiger, A.F., ‘Financing the Bioindustry and Facilitating Biotechnology Transfer’,
1 IP Strategy Today 8, 2004, 1–45, at 19–23; Graff, G.D., Cullen, S.E., Bradford, K.J.,
Zilberman, D., Bennett, A.B., ‘The Public-Private Structure of Intellectual Property
Ownership in Agricultural Biotechnology’, 21 Nature Biotechnology, 2003, 989–95,
at 994–5; Gold, E.R., ‘Biotechnology patents: strategies for meeting economic and
ethical concerns’, 30 Nature Genetics, 2002, 359, at 359; Graff, G.D., Zilberman, D.,
‘Towards an Intellectual Property Clearinghouse for Ag-Biotechnology. An Issues
Paper’, 1 IP Strategy Today 3, 2001, 1–38, at 10–14; and Van Overwalle, G., van
Zimmeren, E., Verbeure, B., Matthijs, G., ‘Models for facilitating access to patents
on genetic inventions’, 7 Nature Reviews Genetics, 2006, 143–148, at 145–147.
16
╇ See also: van Zimmeren, E., Verbeure, B., Matthijs, G., Van Overwalle, G., ‘A
Clearinghouse for diagnostic testing: the solution to ensure access to and use of pat-
ented genetic inventions?’, 84 Bulletin of the World Health Organization, 2006, 352–359
and Van Overwalle et al., ‘Models for facilitating access’, at 145–147.
17
╇ Krattiger, ‘Financing the Bioindustry’, at 1–45.
18
╇ Graff et al., ‘The Public-Private Structure’, at 989–95 and Graff et al., ‘Towards an
Intellectual Property Clearinghouse’, at 1–38.
 Clearinghouse mechanisms: conceptual framework 69

in the viability and compliance with competition law principles of a

�clearinghouse for genetic diagnostics. In the present chapter, not the
similarities but the differences between copyright collection societies
and patent royalty collection clearinghouses will be underlined. Sections
5.4 and 5.5 set out the building blocks of the royalty collection clear-
inghouse in a patent context and the potential pitfalls in this process.
I conclude with some final remarks and suggestions in Section 5.6.

5.2 Clearinghouses: concept and typology

The term clearinghouse is derived from banking institutions and refers
to the mechanism by which cheques and bills are exchanged amongst
member banks in order to transfer only the net balances in cash.
Nowadays the concept has acquired a much broader meaning. It is used
in relation to almost any mechanism whereby providers and users of
goods, services and information are matched.19
Five types of clearinghouses can be distinguished. The first two
�models merely provide access to (protected) information. This can be
‘simple’ information related to technology, patents, claims etc. (informa-
tion clearinghouse). In addition, lists of technologies available through
licensing can be furnished. On the basis of this information, technol-
ogy owners and users may enter into licensing negotiations (technology
exchange clearinghouse). Hence, these clearinghouses do not guaran-
tee the authorized use of the patented inventions and still require time-
consuming licensing negotiations. The remaining three more advanced
clearinghouse types aim at catering for both access to and (standard-
ized) use of the inventions. Access and use can be offered by a clearing-
house on a royalty-free, open access basis (open access clearinghouse),
or via standard licences (standard licences clearinghouse and royalty
collection clearinghouse). The royalty collection clearinghouse might
offer various services, such as information exchange, standard licences,
collection and distribution of royalties, monitoring and enforcement,
and dispute resolution.
This typology is arbitrary to the extent that the distinction into clear-
inghouses could be based on other criteria. For instance, whether the
clearinghouse is a collaboration between patent holders or an independ-
ent mechanism.20 The distinctive criterion used in the present paper is

╇ Krattiger, ‘Financing the Bioindustry’, at 20.

19

╇ Aoki, R., Schiff, A., Intellectual Property Access Systems, Tokyo, Institute of Economic
20

Research Hitotsubashi University, Discussion Paper Series A, No. 491, March 2007,
available at www.ier.hit-u.ac.jp/Common/publication/DP/DP491.pdf.
70 Esther van Zimmeren

the kind of services related to patent licensing provided by the clearing-

house. The typology is dynamic to the extent that in practice a clear-
inghouse may develop from one end of the spectrum to the other end:
from an information clearinghouse to a more advanced type of clear-
inghouse. I acknowledge that in some case studies the clearinghouse
provides services complementary to the services described in this paper.
However, in line with the chosen typology these will not be highlighted
in this paper.
The different types of clearinghouses will be evaluated in view of
their potential to remedy three practical impediments practitioners
may face as a result of patent thickets and unilateral restrictive licens-
ing practices, which may ultimately hamper access to diagnostic testing
services for patients; first, the rising level of transactions costs, especially
the bargaining costs due to the high number of licensing negotiations
necessary to guarantee freedom to operate; second, the subsequent
accumulation of royalties – royalty stacking; and, third, the impossibil-
ity to obtain a licence from a non-cooperative patent holder leading to a
blocking position.
A clearinghouse could be administered either as a voluntary scheme
or as a statutory framework on a compulsory basis. In the framework of
this paper the compulsory regime is regarded as the last resort. In prin-
ciple, the establishment of a clearinghouse is regarded as a voluntary
process.21 This starting point yields some pros and cons and a need to
consider additional incentives that trigger the voluntary participation
of the stakeholders in the clearinghouses (especially in light of the third
impediment, see above).

Clearinghouses facilitating access

Information clearinghouse
The information clearinghouse provides a mechanism for exchanging
(technical) information, and/or information related to the IP status of
said information. Information mechanisms are relatively easy to set up
but require constant maintenance and updating.22
Examples vary from general search engines such as Google or
PubMed, to global biodiversity information networks, such as the

21
╇ Cf.: Merges, R.P., ‘Contracting into Liability Rules: Intellectual Property Rights and
Collective Rights Organizations’, 84 California Law Review, 1996, 1293–1386 and
Merges, R.P., ‘Of Property Rules, Coase and Intellectual Property’, 94 Columbia law
Review, 1994, 2655–2673.
22
╇ Krattiger, ‘Financing the Bioindustry’, at 20 and Graff et al., ‘Towards an Intellectual
Property Clearinghouse’, at 1–6.
 Clearinghouse mechanisms: conceptual framework 71

Global Biodiversity Information Facility (GBIF)23 and the Convention

on Biological Diversity Clearinghouse.24 Well-known examples of
information clearinghouses in the field of patents are Espacenet from
the European Patent Office (EPO)25 and Google Patent Search 26 which
are freely accessible, and fee-based databases, like Delphion, 27 STN
International,28 Dialog29 or Micropatent.30 There are specific patent
biotech search platforms as well, such as Patent Lens.31 Patent Lens is
established in the framework of the Biological Innovation for an Open
Society (BiOS) initiative32 launched by Cambia33 and offers a free, fully
text-searchable database of US, European and Australian agricultural
and life science patents, complemented with advisory and educational
services.
For this chapter especially the information clearinghouses in the
field of patents are relevant. These information clearinghouses facilitate
searches by patent experts to assess an organization’s freedom to operate
with regard to a specific product or process. Researchers may use them
as a source of detailed, technical information for further innovation.
Despite the facilitation of access to information on the patented inven-
tions, these clearinghouses do not contribute directly to the solution of
the above-mentioned impediments34 except for the search costs for locat-
ing the licensing partners. The name of the applicant or proprietor men-
tioned on the patent may be helpful. However, one should be aware that
this person will not necessarily be the competent licensing partner due to
assignment, mergers, strategic IP management, research collabor�ations,
complicated ownership arrangements within universities etc.

Technology exchange clearinghouse

The technology exchange clearinghouse is based on the concept of
Internet business-to-business (B2B). Technology exchange clearing-
houses offer information services listing the available inventions related

23
╇ GBIF offers free digital access to primary scientific data on biodiversity to everyone
in the global community. See: www.gbif.org/. See the contribution of Edwards, J.,
‘Case 3. The Global Biodiversity Information Facility. An example of an information
clearinghouse’, Chapter 6 of this volume.
24
╇ The Convention on Biological Diversity Clearinghouse aims at promoting technical
and scientific cooperation, and facilitating the exchange of scientific, technical, and
legal information related to biodiversity. See: www.biodiv.org/chm/.
25
╇ www.ep.espacenet.com. 26
╇ www.google.com/patents. 27╇ www.dephion.com.
28
╇ www.stn-international.de. 29
╇ http://dialog.com.
30
╇ www.micropatent.com/static/index.htm. 31╇ www.patentlens.net.
32
╇ www.bios.net.
33
╇ www.cambia.net. See the contribution of Berthels, N. ‘Case 8. CAMBIA’s Biological
Open Source Initiative (BiOS)’, Chapter 13 of this volume.
34
╇ See above, at 10.
72 Esther van Zimmeren

to a specific technology. On the basis of this information technology

users will then initiate negotiations with the patent proprietor for a
licence. Some clearinghouses allow licensees to opt for additional part-
nering, mediating and managing services.35
BirchBob36 and yet2.com37 are examples of global technology
exchange clearinghouses. Specific healthcare technology exchange
platforms include Pharmalicensing 38 or TechEx,39 which provide online
partnering support enabling companies in the biopharmaceutical and
biomedical industry to find licensing partners and conclude licensing
contracts. Specific biotechnology clearinghouses include PIPRA (Public
Intellectual Property Resource for Agriculture).40 PIPRA is an organ-
ization committed to strategic management of patents owned by uni-
versities, foundations and non-profit research institutions encouraging
the broadest application of existing emerging agricultural technologies
to develop and distribute improved staple crops and improved specialty
crops for the public benefit. The PIPRA Agricultural IP Database41 is
established to monitor and advertise, on an ongoing basis, the status
information of PIPRA member institutions’ agricultural biotechnology
patents and allows member institutions to effectively contract out some
of their technology through increasing exposure of their availability.
PIPRA’s European counterpart, inspired by the model of PIPRA, is the
European collective management of Public Intellectual Property for
Agricultural Biotechnologies (EPIPAGRI).42 The EPIPAGRI initia-
tive is a European project established with support from the European
Commission and aiming to encourage public sector research organiza-
tions to collaborate in the management and promotion of their intellec-
tual property assets in the field of agricultural science.
The technology exchange clearinghouse model will in general be
cheap to maintain and will require only relatively low operating costs.
However, the clearinghouse is dependent on the cooperation of patent
holders in providing the necessary information. It might be difficult
to bring together a critical mass of genetic patents in order to turn the

35
╇ Krattiger, ‘Financing the Bioindustry’, at 21–22 and Graff et al., ‘Towards an
Intellectual Property Clearinghouse’, at 6–8.
36
╇ www.birchbob.com. For a more profound insight into this clearinghouse, see the con-
tribution of van Zimmeren, E. and Avau, D., ‘Case 4. BirchBob: An example of a
technology exchange clearinghouse’, Chapter 7 of this volume.
37
╇ www.yet2.com. 38╇ www.pharmalicensing.com. 39╇ www.techex.com.
40
╇ www.pipra.org. For a more detailed analysis of this clearinghouse see the contribution
of Bennet, B. and Boettiger, S., ‘Case 5. The Public Intellectual Property Resource
for Agriculture. A standard license public sector clearinghouse for Â�agricultural IP’,
Chapter 8 of this volume.
41
╇ http://pipra.m-cam.com/. 42
╇ www.epipagri.org/.
 Clearinghouse mechanisms: conceptual framework 73

clearinghouse into a tool ensuring effective access to patented inven-

tions. Public organizations and small- and medium-sized companies
may have a rather large interest in transferring information on their
inventions to foster their ‘visibility’ as a patent holder (provided they
pursue an active out-licensing strategy). Big pharma and biotech multi�
nationals with their IP and licensing departments might not have this
visibility incentive. Anyway, they might appreciate technology exchange
clearinghouses more from the in-licensing perspective, than for out-
licensing purposes. This might lead to a rather one-sided technology
portfolio of the clearinghouse.
At present, most of the clearinghouses only offer a small (pro)portion
of the market and a low density of patents, and hence one has to search
various websites (sometimes paying considerable registration fees). Some
may argue that this model is only suitable for technologies that can be
easily defined and valued. It would only be a useful model for general
purpose research methods, such as Polymerase Chain Reaction (PCR),
and for patents protecting very specific and well defined improvements
to familiar upstream products or processes.43 Well-trained and expe-
rienced staff and a cooperative attitude of right owners and users may
partially solve this issue.
It is essential to remember that effective access to the patented inven-
tions is not granted by the technology exchange clearinghouse but by
the individual patent holder after one-to-one licensing negotiations
have taken place with the licensee. These negotiations are, neverthe-
less, based on the information provided by the clearinghouse. The
clearinghouse provides access to the technical information described
in the patent and contact information on the patent holder/licensor
involved, but does not provide a one-stop licensing access. The trans-
action costs may be lower than without the interference of the clearing-
house as the information on available technologies is nicely organized
and at hand. Hence, the search costs will be lower than without the
technology exchange clearinghouse. Different from what its name may
suggest, the technology exchange clearinghouse does not guard the
whole exchange process but merely serves as a ‘dating service’ without
guarantee of a prosperous relationship. The user still has to enter into
negotiations with the patent holder and develop a relation of trust and
understanding.
On the one hand, this gives opportunities to bargain a well-tailored
licence fitting the desires of both parties. On the other hand, such an

43
╇ Krattiger, ‘Financing the Bioindustry’, at 22 and Graff et al., ‘Towards an Intellectual
Property Clearinghouse’, at 6–7.
74 Esther van Zimmeren

optimal result will generally only be achieved when a legal counsel is

involved and after a period of intense discussions. So, if for instance
the licensee would expect the occurrence of royalty stacking in view of
the ‘thicket’ of licences that has to be settled before bringing the prod-
uct to the market, he will need good negotiation skills to persuade all
patent holders to insert a reasonable ‘anti-royalty stacking clause’ in
the licence.44 A typical anti-stacking provision states that the royalty
rate payable to the licensor will be reduced if the licensee is obliged to
enter into licences with third parties in relation to the product. It is not
difficult to see how such a provision can lead to a disparity between
the expectations of the licensor as to the royalty it will receive from the
licensee and the actual royalty the licensee is contractually obliged to
pay. These expectations may be tempered by information and negoti-
ation obligations on the licensee. Or one may consider putting a floor
on the extent to which the royalty rate can be reduced in response to
stacking.
This example shows that despite the economies yielded for the search
costs by the interference of the technology exchange clearinghouse, in
the end, the need of complex licensing negotiations may still lead to
high bargaining costs. The licensing partners will not be indebted for
the royalty stacking remedy to the clearinghouse but to the negotiation
skills of their representatives. Nor would there be any safeguard to drag
a non-cooperative patent holder into negotiations.

Clearinghouses facilitating access and use

Open access clearinghouse
A rather unique type of a clearinghouse is the open access clearing-
house.45 This type of clearinghouse does not only foster free access to
information as its name may suggest, but also free use of inventions.
A recent example of an open access clearinghouse is the Eco-Patent
Commons initiative.46 The World Business Council for Sustainable
Development (WBCSD) and IBM are initiating this effort in part-
nership with Nokia, Pitney Bowes and Sony. Its purpose is to foster
innovation and establish new collaborative efforts by making patented

44
╇ For more information, see for instance Liberman, A., Royalty stacking: tips for licen-
sors and licensees, 25 November 2005, available at www.freehills.com.au/publica-
tions/publications_5332.asp regarding Cambridge Antibody Technology v. Abbott
Biotechnology Ltd, [2004] EWHC 2974 (Pat) and Clark, V., Pitfalls in drafting roy-
alty provisions in patent licences, available at http://pharmalicensing.com/articles/
disp/1087832097_40d70021d738c.
45
╇ Krattiger, ‘Financing the Bioindustry’, at 22–3. 46
╇ www.wbcsd.org.
 Clearinghouse mechanisms: conceptual framework 75

technology that provides environmental benefit (e.g. energy conserva-

tion or efficiency, pollution prevention, use of environmentally prefer-
able materials or substances, materials reduction, increased recycling
ability) easily available.
The Eco-Patent Commons is open to all companies from a wide
diversity of industry sectors. It is fed with initial and subsequent ‘patent
pledges’ by companies that become members. Which patents are con-
tributed to the Commons and whether maintenance fees on pledged
patents are being paid47 is left to the discretion of each patent holder.
Probably, companies will want to retain their exclusive rights to patents
that may represent a significant business advantage.
The patents can be identified in a searchable website hosted by the
WBCSD. Through the Eco-Patent Commons, the patents will be made
available for free use by all, subject to defensive termination. This
means that a patent holder may terminate a specific party’s rights on
the occurrence of an offensive use of patents by that party. The Eco-
Patent Commons has a minimal structure sufficient to handle some
administrative work, manage the website, and provide a point of con-
tact for prospective members. Membership fees are initially set to zero,
but eventually there may be a membership fee to cover costs associated
with the management of the Eco-Patent Commons.
In the life sciences, a well-known example is the SNP Consortium.
The goal of the SNP Consortium,48 a non-profit entity, is to identify
and collect single nucleotide polymorphisms (SNPs) and to create and
make freely publicly available the SNP map of the human genome at
the earliest possible date, without any proprietary rights maintained by
the members of the Consortium, in order to enable further drug dis-
covery. It is interesting to note that a variety of organizations cooperate
in the consortium ranging from academic research institutes to large
pharmaceutical companies. The IP strategy pursued to safeguard these
goals included the filing of provisional patent applications upon the
discovery of new SNPs and prior to release into the public domain,
thereby maintaining the priority date of discovery of the SNP for use as
prior art. These provisional applications were later converted into US
utility patent applications and instead of prosecuting the grant of the
patents, the applications were converted into statutory invention regis-
trations.49 The identified SNPs were only released to the public when

47
╇ However, if a patent holder decides to let a pledged patent lapse or it otherwise becomes
unenforceable, the patent holder shall provide written notice to the Commons.
48
╇ http://snp.cshl.org.
49
╇��������������������������������������������������������������������������������������35 U.S.C. 157 Statutory invention registration: ‘(a) Notwithstanding any other provi-
sion of this title, the Director is authorized to publish a statutory invention registration
76 Esther van Zimmeren

mapping had been achieved to prevent the patenting of these SNPs by

third parties.50
Open access clearinghouses may especially be a well-tailored model
for sharing and exchanging unpatented inventions. As access is free and
the inventions available without further need for bargaining, in prin-
ciple transaction costs are zero. Royalty stacking will be out of order as
the inventions are accessible free of charge.
However, most of the genetic inventions are the outcome of long-
�lasting research initiatives requiring high investments. Both private
enterprises and universities wish to recover those investments and there-
fore apply for patent protection. For this reason, apart from situations
where the patent rights are extremely fragmented, as illustrated by the
SNP Consortium, or cases where one may seriously doubt whether the
patentability requirements can be met, holders of patents related to ge�
netics will probably not have a strong incentive to voluntarily �cooperate
in a scheme where the patented inventions will end up in the public
domain without any compensation. Or either they will want to use
their discretion and retain exclusive rights to patents that represent sig-
nificant business advantages (judging the example of the Eco-Patent
Commons). Therefore, the scope of application for this type of clear-
inghouse in order to safeguard broad access and use in genetic diagnos-
tics is expected to be rather limited, at least in the near future.

Standard licences clearinghouse

An upcoming and celebrated model is – what I term – the ‘standard
licences clearinghouse’ providing access to and standard licences for the
use of protected inventions. Standard licences will need to reflect the
complexity of the market, the product and the variety of users. Therefore,
‘standard’ would not mean a one-size-fits-all licence but a preset licence
with options that have been established in negotiations between the right
holder and the clearinghouse. This could be operated by a portal through

containing the specification and drawings of a regularly filed application for a patent
without examination if the applicant – (1) meets the requirements of section 112 of
this title; (2) has complied with the requirements for printing, as set forth in regula-
tions of the Director; (3) waives the right to receive a patent on the invention within
such period as may be prescribed by the Director; and (4) pays application, publi-
cation, and other processing fees established by the Director. If an interference is
declared with respect to such an application, a statutory invention registration may
not be published unless the issue of priority of invention is finally determined in favor
of the applicant.’
50
╇ Holden, A.L., ‘The SNP Consortium: Summary of a Private Consortium Effort to
Develop an Applied Map of the Human Genome’, 32 BioTechniques, 2002, S22-S26.
See also the contribution of Verbeure, ‘Patent pooling for gene-based diagnostic test-
ing. Conceptual Framework’, Chapter 1 of this volume.
 Clearinghouse mechanisms: conceptual framework 77

which licensors and licensees can use a simple interface, with drop-down
menus and standard questions, to choose a patent licence. By answering
simple questions, they will be offered a choice between specific standard
licences or the ability to choose from a standard set of options that can be
mixed and matched to create a customized agreement, tailored to fit the
large variety of circumstances in patent licensing.
An example of a standard agreement scheme is offered by Science
Commons.51 Science Commons examines, in cooperation with the
stakeholders concerned, standard licensing models to facilitate wider
access to scientific subject matter. Science Commons works in three
project areas: scholarly publishing, licensing policies and the realiza-
tion of the ‘semantic web’ for science. It aims at broadening access to
scholarly communications in a range of disciplines (Scholar’s Copyright
Project)52 and at encouraging intellectual property licensing, technology
transfer (Biological Material Transfer Agreement Project)53 and data
sharing (Neurocommons Project).54 The Biological Materials Transfer
Agreement Project develops and deploys standard, modular contracts to
lower the costs of transferring physical biological materials, e.g. DNA,
cell lines, model animals, antibodies. The project covers transfers among
non-profit institutions as well as between non-profit and for profit insti-
tutions. It integrates existing standard agreements (Uniform Biological
Materials Transfer Agreement and the Simple Letter Agreement) with
new Science Commons’ contracts, and allows for the emergence of a
transaction system along the lines of Amazon or eBay.
Its ‘mother/sister-organization’ Creative Commons55 has already been
in operation for a couple of years facilitating the use of copyrighted mate�
rial by way of standardized, simplified licences.56 The criteria decisive
for the applicable copyright licence are whether the work would be used
commercially, whether it would be modified, what would be the appro-
priate jurisdiction, and the format of the work. In addition to these
‘general’ copyright licences, over the years some more specific copy-
right licences have been developed, amongst which are the �so-called
‘developing nations licence’, the ‘music sharing licence’ and the Creative
Commons GNU GPL.57 The most comprehensive licence is the ‘public

51
╇ http://sciencecommons.org/. 52╇ http://sciencecommons.org/projects/publishing/.
53
╇ http://sciencecommons.org/projects/licensing/.
54
╇ http://sciencecommons.org/projects/data/. 55
╇ http://creativecommons.org/.
56
╇ Creative Commons offers its standard licences in three versions: the official licence
including all the legally correct terms and detailed licensing conditions, the versions
readable for the general public and the machine-readable version.
57
╇ This licence adds the Creative Commons metadata and the Commons deed (human-
readable version of the licence) to the Free Software Foundation GNU General
Public License.
78 Esther van Zimmeren

domain dedication’ by which the right holder promises not to enforce his
copyright. This approach aligns with the goals of the open access clear-
inghouse. The Science Commons Licensing Project aims at extending
such practices beyond copyright into the realms of patents, technology
transfer and intellectual property licensing. Besides the development of
the standard licences, Creative Commons and Science Commons do not
provide other legal services. Monitoring and enforcement of the licences
is in principle the responsibility of the right owners.
Standard licences for patented genetic inventions could be differenti-
ated as to the nature of the user, the objective of the use and the profile
of the eventual product to be developed by the licensee. Whereas the
existing Creative Commons licences not requiring licence fees may do
in the area of copyright, it will most likely be more difficult to persuade
patent holders into such a licensing scheme. Deciding upon the royalty
will probably be the most sensitive and controversial subject. Fixing a
certain percentage and/or upfront payment in a standard licence will
meet with strong opposition. Innovation is also a dynamic process
which should be reflected in the licence. Moreover, drafting the clauses
of licences necessitates a careful balancing of the interests of the licen-
sor and licensee, which will be reflected in the licensing conditions. To
function as an effective alternative, standard licences should at least
offer enough variety and the system should allow for different options
that can be mixed to create a customized agreement.
In principle replacing the tailored licence by a (customized) stan�
dard licence agreement would – once the standard licences have been
Â�developed in consultation with the stakeholders – diminish the bargain-
ing costs for individual licences. In principle licencees would have but
one choice if the licencees is generated through the transaction system
of the clearinghouse: ‘take it or leave it’. It appears desirable that only
in exceptional circumstances the licensee would be permitted to notify
the clearinghouse of a reasoned request to enter into further negoti-
ations for an adapted version of the standard licence. Otherwise, the
decrease of transaction costs would yet be undone. In order to prevent
the accumulation of royalties in the interest of the licensees, licences
should contain an anti-royalty stacking clause.
A patent holder who is not willing to step into the clearinghouse,
remains in principle free to stay out of it. Assuming the standard
licences clearinghouse is not embedded in a compulsory scheme where
the patent holder can no longer decide for himself whether a licence
will be granted or not to a specific user (be it on an exclusive or non-
exclusive basis), the owner will remain in control on who will have
access to his inventions. Therefore, access to and use of the patented
 Clearinghouse mechanisms: conceptual framework 79

inventions cannot be guaranteed for all inventions nor for all users. A
non-cooperative patent holder will, unless competition law would in
exceptional circumstances provide ground for action, not be prevented
from refusing the grant of a licence or imposing restrictive licensing
conditions.

Royalty collection clearinghouse

The royalty collection clearinghouse comprises all the functions of the
information clearinghouse, the technology exchange clearinghouse and
the standard licences scheme (see Figure 5.1).
On top of this, the royalty collection clearinghouse sets up a mech-
anism to cash licence fees from users on behalf of the patent holders in
return for the access to and use of the inventions. The patent holders
will be reimbursed by the clearinghouse pursuant to a pre-established
allocation formula or according to the reported real use of the respec�
tive patented inventions by the licensees. Classical examples of collec-
tion schemes include copyright collection societies. Nevertheless, from
the detailed analysis provided below it will become clear that there are
also quite some differences between the royalty collection model as
defined for patents, and the copyright collection societies.
For the national copyright collection societies one may think of the
American Society of Composers, Authors and Publishers (ASCAP),58
the Dutch association BUMA for performance rights and the foundation
STEMRA for mechanical reproduction rights (BUMA/STEMRA),59
the German Gesellschaft für musikalische Aufführungs – und mechanische
Vervielfältigungsrechte (GEMA),60 the Japanese Society for Rights of
Authors, Composers and Publishers (JASRAC),61 the Société Belge des
Auteurs, Compositeurs et Éditeurs (SABAM),62 and the French Société des
Auteurs, Compositeurs et Éditeurs de Musique (SACEM).63 These copy-
right collection societies may vary from country to country as to their
legal basis, legal structure, decision-making procedures, price-setting
proced�ures, licensing conditions, etc.
At present no clear-cut examples of a royalty collection clearinghouse
seem to exist (yet) for the management of patents.64 However, Drahos

58
╇ www.ascap.com/. 59╇ www.bumastemra.nl/InterXtranet/bsinterxtranet/home.
60
╇ www.gema.de/. 61
╇ www.jasrac.or.jp/ejhp/index.htm.
62
╇ www.sabam.be/. 63╇ www.sacem.fr/.
64
╇ Some business models closely resemble the patent royalty collection clearinghouse as
to the services they provide. Often they differ to the extent that those entities require
the assignment of the rights and take up responsibilities that exclude the role of an
independent agent (see below) that takes both the interests of the right owner and the
users into account. Example: BTG (www.btgplc.com).
80 Esther van Zimmeren

information
information cclearinghous
learinghousee
access
access to
to (protected)
(protected) information
information

tec hnology exc hange

c learinghous e
access to information on protected
inventions available for licensing

open ac c es s c learinghous e
access and use on a open access royalty-free
basis

s tandardized lic ens es c learinghous e

access and use on the basis of standardized licences
licenses

royalty c ollec tion c learinghous e

access and use on the basis of standardized licences,
licenses, royalty
collection, monitoring of the patent rights transferred to the
clearinghouse, independent dispute resolution mechanism

Figure 5.1 Five types of clearinghouses can be distinguished: The

first two models merely provide access to (protected) information.
The remaining three types aim at providing both access to and
(standardized) use of the patented genetic inventions. A royalty
�collection clearinghouse may offer monitoring and independent
�dispute resolution on top.

proposed the establishment of the so-called Global Bio-Collecting

Society (GBS).65 The GBS was designed as an efficient, fair and equi�
table exchange model of indigenous knowledge between knowledge
holders, merely non-IP holders (indigenous groups) on the one hand and
knowledge users, IP holders (life science industry) on the other hand.
The GBS model has not been realized, probably because the necessary
political support was missing and protection of traditional knowledge
as such is already a highly sensitive and hotly debated issue.
The royalty collection clearinghouse would act as an independent inter-
mediary (a kind of ‘broker’) fulfilling various services for both patent
right holders and technology users. The royalty collection clearinghouse

╇ Drahos, P., ‘Indigenous Knowledge, Intellectual Property and Biopiracy: Is a Global
65

Bio-Collecting Society the Answer?’, 20 European Intellectual Property Review, 2000,

245–50.
 Clearinghouse mechanisms: conceptual framework 81

would facilitate access to the information on the patented and ‘licens-

able’ inventions by providing a one-stop information platform. Also the
use of the patented inventions by the licensee would be enabled as the
clearinghouse would ease the bargaining process: the clearinghouse
would match the licensee with the patent holder and offer the appro-
priate standard licence. Comparable to the standard licences clearing-
houses, licensees will generally only be able to choose either to take or
leave the standard licence as it is, due to the transaction costs involved
in renegotiating the specific clauses of the standard licence. In order to
prevent the accumulation of royalties in the interest of the licensees, the
clearinghouse might apply anti-royalty stacking rules requiring reduced
royalties or a cap on royalties in the event of stacking.
If a patent holder decides to transfer his patent rights to the roy-
alty collection clearinghouse this would increase the visibility of those
rights. Former infringers will have an easy access to the clearing-
house database and can contact clearinghouse staff members for more
detailed information on patented inventions. Moreover, the transfer
would simplify the collection of royalties by the patent proprietor and
infringement monitoring. Assuming that users that infringe upon the
patents at present would be willing to pay royalties if determined by an
independent intermediary (the clearinghouse) at a reasonable level, this
would most likely lead to a rise in licensing and thus licensing revenue
for the patent holder. The clearinghouse could promote awareness and
respect for IP rights amongst researchers66 and their public and pri-
vate institutions, which might result in a decline in enforcement costs.
Hence, there would be an incentive for patent holders to cooperate with
the clearinghouse. Moreover, a reasonable price for both licensees and
licensors would be achieved. The use of essential patented technology
for a reasonable royalty would be safeguarded for licensees without the
need to undertake complex searches, and without costly negotiations
and high litigation risks. Licensors will make their technology available
under flexible conditions in line with their business strategy for which
they will receive a reasonable royalty without the necessity to negotiate
licences with all partners interested and with the advantage of more
consistent monitoring of infringements.
An important prerequisite for the royalty collection clearinghouse
to be effective is that there should be a recurring need to transact in

66
╇ It is acknowledged that although until now patent holders do not actively assert their
rights against academics, this may change in the future and for specific technology
areas. Moreover, differences regarding the existence and scope of research exemp-
tions lead to legal uncertainty. Zero sum royalty licences for researchers may clear
this uncertainty.
82 Esther van Zimmeren

patents included in the clearinghouse.67 As diagnostic tests are carried

out on a regular basis on a worldwide level (although there might be
differences between states regarding the diseases for which patients are
regularly tested), and both public and private entities are performing
research on existing tests and developing complementary and alterna-
tive tests, in genetic diagnostics this requirement will most probably
be fulfilled. This is further strengthened by the developments in chip
technology and pharmacogenomics.
Nevertheless, it is only worthwhile to establish such a clearinghouse
if many patent holders or an entire branch of industry participates.68
It remains to be seen, whether the benefits of the royalty collection
clearinghouse could persuade patent proprietors with a strong port-
folio and a well-established in-house IP and licensing department to
voluntarily participate in the clearinghouse. Similarly, one may doubt
whether the third obstacle concerning the non-cooperative patent
holder might be overcome by a voluntary royalty collection clear-
inghouse. A patent holder who does not wish to grant licences at all
or on conditions that conflict with the clearinghouse’s objectives in
principle cannot be compelled to join the clearinghouse. A back-door
mechanism to bring the unwilling patent holder within the clearing-
house scheme could be to impose a ‘reciprocal positive comity clause’
or a ‘grant-back clause’ in the standard licences. The idea of a ‘posi-
tive comity clause’ is derived from international law and constitutes
an obligation to cooperate with the clearinghouse; it articulates a
socially responsible approach in the light of access to medicines and
treatment. The obligation to cooperate is mutual. Licensees of pat-
ented inventions licensed by the clearinghouse should transfer essen-
tial patent rights to the clearinghouse (and thus become licensors in
this respect), or agree to adopt a (fair), reasonable and non-discrimi-
natory unilateral licensing strategy (in Europe called FRAND-terms
and in the US described as �RAND-terms)69 outside the clearing-
house. A broad ‘grant-back clause’ would oblige the patent holder
to ‘license back’ his (essential) patents non-Â�exclusively to the clear-
inghouse if he applies for licences from the clearinghouse. However,
patent and competition law require cautiousness in �imposing such
broad, invading
� measures.

67
╇ See also: Merges, ‘Contracting into Liability Rules’, at 1293–1386.
68
╇ Krattiger, ‘Financing the Bioindustry’, at 19.
69
╇�������������������������������������������������������������������������������������� See also the debate with regard to patent pools and industry standards for the inter-
pretation of (F)RAND-terms.
 Clearinghouse mechanisms: conceptual framework 83

5.3 Copyright collection societies

The following analysis will examine the major characteristics of CCS,

highlight some justifications for the establishment of CCS, provide an
overview of the relevant international and European legal framework,
describe a number of recent developments related to the European
collection societies, summarize the relevant US and European Union
(EU) competition law jurisprudence and will conclude by pointing to
some concerns regarding the copyright collection societies. In order to
distinguish the royalty collection clearinghouse for patent licensing from
the copyright collection societies, from now on I will use the term ‘patent
royalty collection clearinghouse’ (PRCCH) for the former.
The rationale for analyzing CCS is twofold. First, highlighting the
special characteristics of copyright collection societies in comparison
with the concept of a patent royalty collection clearinghouse as used
in this paper. At several instances commentators have put PRCCHs
on a level with CCS in order to explain the concept of PRCCHs. In
my opinion this link failed to appreciate the considerable differences
between patents and copyright, between licensors and licencees of
patents on the one hand and licensors and licencees of copyright on
the other hand, and the institutional framework of the CCS and the
PRCCH. The failure to articulate these differences actually obscured
the idea of a PRCCH. Moreover, criticism with regard to CCS does
not automatically apply to patent royalty collection clearinghouses.
Second, the analysis aims at providing some valuable basic principles
for the assessment of the viability and competition law compliance of a
patent royalty collection clearinghouse for genetic diagnostics.
This review is far from exhaustive, but may function as a starting
point and source of inspiration for further debate.

Characteristics of CCS
Already in the eighteenth century composers and authors themselves
initiated the collective management and protection of their copyrights
by setting up the first collection societies. Right holders founded these
societies to engage in joint licensing, exploit their remuneration rights,
and monitor and enforce their rights at a reasonable cost. Individual
right holders benefited because they faced difficulties in exercising
these activities on an individual basis in view of the potentially high
numbers of uses and users. Similarly, users were expected to benefit
from a single point of reference when seeking a licence both in terms
of authorization and payment of royalties.
84 Esther van Zimmeren

Despite benefits for both right owners and users, copyright collection
societies’ major task is to represent their members’ interests vis-à-vis
users. In doing so, copyright collection societies are not acting as inde-
pendent intermediaries,70 whereas one of the major features of a patent
royalty collection clearinghouse in genetic diagnostics is its independ-
ence. The PRCCH would act as an agent without representing solely
the interests of the patent owners/licensors or of the technology users/
licensees.
In a copyright collection scheme the author or performer transfers
his economic rights (excluding his moral right) to the copyright col-
lection society by assignment or a licence.71 Copyright collection soci-
eties may be corporate, charitable, for profit or not-for-profit entities.
According to the European Commission, the legal status as such does
not necessarily have an impact on a society’s efficiency.72
Many states have regulated the management of rights by copyright
collection societies to a greater or lesser extent. Regulation includes
for instance statutory requirements for obtaining an authorization to
exercise collective management, government supervision, distribution
of royalties, establishment of a specialized dispute settlement body,
the obligation to appropriate part of the royalties for cultural or other
public interests and the requirement to set up welfare and assistance
schemes.73 In view of the perceived advantages of collective management
of remuneration rights, several states have set up compulsory schemes
for �collective management. This means that remuneration rights may
only be administered by the designated collection societies.74

70
╇ Cf.: Graff et al., ‘Towards an Intellectual Property Clearinghouse’, at 9.
71
╇ Assignment is a transfer of rights in an exclusive and definitive manner. Licenses
authorize the performance of a specific act, which without the authorization would
be an infringement of the right concerned. Licenses may be exclusive, non-exclusive
or sole licenses.
72
╇ European Commission, Communication from the Commission to the Council,
the European Parliament and the European Economic and Social Committee, The
Management of Copyright and Related Rights in the Internal Market, Brussels, 16 April
2004, COM(2004) 261 final, at 18 (hereinafter ‘Communication Management of
Copyright’).
73
╇ Tuma, P., ‘Pitfalls and Challenges of the EC Directive on the Collective Management
of Copyright and Related Rights’, 17 European Intellectual Property Review, 2006,
220–9.
74
╇ See for instance Germany, Wahrnemungszwang, § 6 Abs1UrhWg (Gesetz über
die Wahrnemung von Ürheberrechten und verwandten Schutzrechten). See:
Kretschmer,€ M., ‘The Failure of Property Rules in Collective Administration:
Rethinking Copyright Societies as Regulatory Instruments’, 13 European Intellectual
Property Review, 2002, 126–136; and Liholm, J., ‘GEMA and IFPI’, 13 European
Intellectual Property Review, 2002, 112–125.
 Clearinghouse mechanisms: conceptual framework 85

Usually, the collection societies manage the rights for a specific cat-
egory of copyright or neighbouring right holders.75 In this paper I will
not distinguish between the different categories of rights and refer to
copyright collection societies in general. Nevertheless, the examples
and case law will primarily concern music and in particular Â�performers’
rights.
CCS grant licences, determine tariffs, administer, collect, distribute
the payment of royalties and monitor the use of the protected mate�rial
and enforce their members’ rights on the basis of national law with
respect to their respective territories. The royalties collected will be dis-
tributed by the collection societies to their members and other collec-
tion societies76 after deduction of the administration costs on the basis
of set distribution rules. These rules should reflect the delicate balance
between the interests of the different groups of rights holders.
Many CCS offer so-called ‘blanket licences’, the centerpiece of col-
lective administration of rights in music. By a single licence and for a
fixed royalty, users acquire unlimited access to the repertoire of the
members of the society. An important aspect of this system is that licen-
cees do not pay for each use and for each individual work used, but pay
a flat-royalty rate. Hence, the rate is not related to the actual use of the
music, but in many countries calculated on the basis of a sample of an
‘average user’ in a specific sector. Users have criticized this method, as
it lacks flexibility and generally would not reflect the commercial value
of the use. To increase the flexibility, it has been proposed to introduce
subcategories of works for which a licence could be granted. Also in the
relationship between the collection society and its members, there are
generally no individual arrangements compensating each use of each of
their individual works.
Most CCS are part of a global network of bilateral, reciprocal agree-
ments, by which rights are cross-licensed between societies in different
countries. The network of agreements guarantees access to a global
catalogue of rights.77 This way, societies can provide a one-stop licens-

75
╇ Copyright collection societies administer rights in the area of music, literary and
dramatic works as well as audiovisual works, productions and performances for
activities such as communication to the public and cable retransmission of broad-
casting programs, mechanical reproductions, reprography, public lending, artist’s
resale right, private copying or certain educational uses. See: European Commission,
‘Communication Management of Copyright’, at 14.
76
╇ For which they have gathered royalties on the basis of so-called reciprocal licensing
agreements. See below.
77
╇ In this regard the activities of the Confédération Internationale des Sociétés d’Auteurs
et Compositeurs (CISAC) (established in 1926)) and Bureau International des
Sociétés Gérant les Droits d’Enregistrement et de Reproduction Mécanique (BIEM)
86 Esther van Zimmeren

ing mechanism to the world repertoire, including their own members’

repertoire and the works of the members of the societies with which
reciprocal agreements exist. However, the one-stop (blanket) licence
will generally only affect use of the world repertoire within the territory
of operation of the society concerned.78

Justifications for the establishment of CCS

Advocates of copyright collection societies refer to both economic and
social reasons to justify the establishment of collection societies. The
major economic justification relates to the fact that collective admin-
istration has the characteristics of a natural monopoly. The concept
‘natural monopoly’ implies that a single entity can provide services at
a lower per-unit cost than can two or more entities; efficiency would
thus be better served if a single entity supplies the entire market.79 In
the area of copyright this single entity would be the national copyright
collection society.
Several features of copyright management explain the characteriza-
tion as a natural monopoly. First, natural monopolies have a high bar-
rier for new market entrants. Building a new catalogue of copyrights
requires time and enormous investments. Furthermore, fixed costs of
administration, distribution of royalties, monitoring and enforcement
are high. Hence, new market entrants representing a limited number of
right holders and thus collecting only relatively modest royalty revenue,
will probably not be able to attain a healthy equilibrium between costs
and benefits.
Second, an existing collection society would enjoy economies of scale.
Individually licensing rights for millions of works between thousands of
right holders and users would engender enormous transaction costs.80
These costs would be generated by the identification and location of
the right holders, the exchange of the relevant information and the

(established in 1929)) developing model agreements are crucial. For more informa-
tion, see: www.cisac.com/ and www.biem.org/.
78
╇ See, however, Section ‘EU and US competition law framework for CCS’.
79
╇ Depoorter, B., ‘Regulation of a Natural Monopoly’, in Bouckaert, B., and De€G eest,€G.
(eds.), Encyclopedia of Law and Economics, Cheltenham, Edward Elgar, vol.€III, 2000,
498–532.
80
╇ Kretschmer, ‘The Failure of Property Rules’, at 127 and 133–6. Kretschmer argues
that the transaction costs justification for collective administration may support not
a universal rights administration system (to which all, right holders have access on
similar terms), but a system where the major right holders selectively decide, sup-
ported by sophisticated information technology, whether collecting license fees is
worthwhile.
 Clearinghouse mechanisms: conceptual framework 87

negotiation of separate licences. The transaction costs would probably

even be higher than the actual licence fees received in such transac-
tions. To avoid wasting money or effort, users might refrain from using
the works altogether, or might resort to doing so illegally. CCS enable
both right holders and users to save transaction costs by allowing right
holders to become a member of the society on the basis of just one
agreement, while users obtain a single blanket licence granting them
unlimited access to the world repertoire for a flat royalty-rate. Apart
from reducing the bargaining costs associated with individual licensing
negotiations, the blanket licence may substantially reduce the enforce-
ment costs of protecting the right holder from copyright infringement.
In addition, contracting for arm’s length transactions (between right
holder and user) might be hindered by information deficits or asym-
metric information.81 The collection society appears to be in a better
position to efficiently deal with transaction costs, information deficits
and asymmetric information.
Third, the network effects of the bilateral reciprocal agreements
between the individual collection societies would increase the economic
value of a world repertoire exploited through blanket licences.
A vivid debate has emerged to what extent these economic justifica-
tions are valid and in their own right point to the collective administra-
tion of copyright by monopolistic copyright collection societies instead
of the need for collective administration by intermediaries.82 Some
commentators deem rent seeking the primary reason for right owners to
support the collective management of copyrights instead of a decrease
in transaction costs and facilitation of monitoring and enforcement.
They fear that the system has turned into a ‘rent-Â�seeking orgy’.83 This
did not prevent others from proposing the creation of new forms of
collection societies. In fact, for instance in Canada it is still generally
believed that the advent of digital technologies requires a greater role
for �collective management of copyright. Consequently, some �thirty-six

81
╇ One party may possess information about the potential agreement that the other party
does not possess but values highly, for instance detailed information on the use.
82
╇ Kretchmer, ‘The Failure of Property Rules’; Katz, A., ‘The Potential Demise
of another Natural Monopoly: Rethinking the Collective Administration of
Performing Rights’, 1 Journal for Comp. Law & Economics, 2005, 541–593. See also:
Katz,€A., Copyright Collectives: Good Solution but for Which Problem? NY University,
Engelberg Center, Working Within the Boundaries of Intellectual Property, La
Pietra Conference, June€ 5–6, 2007, available at www.law.nyu.edu/engelbergcenter/Â�
conferences/LaPietra/Katz.pdf; and Gervais, D., ‘The Changing Role of Copyright
Collectives’, in Gervais,€ D. (ed.), Collective Management of Copyright and Related
Rights, The Hague, Kluwer Law International, 2006, at 3.
83
╇ Lemley, M.A., Weiser, P.J., ‘Should Property or Liability Rules Govern Information’,
85 Tex. L. Rev. 2007, at 829–830 and Katz, ‘Copyright Collectives’, at 32.
88 Esther van Zimmeren

copyright collection societies – a majority of which are new – have

emerged.84
And yet one might argue that the Internet and new digital tech-
nologies further undermine the economic justifications for copyright
collection societies as they may lower many of the transaction costs85
which previously were a major justification for collective administra-
tion.86 However, this development does not imply that all right owners
would indulge in administering their rights individually, but that vari-
ous intermediaries of different sizes may do so. For now, especially
large right holders, such as music publishers, seem to benefit from these
technologies and shift to individual rights management instead of col-
lective administration.87
In some countries collection societies also have an important socio-
cultural function. A certain amount of the collected royalties are
intended to be used to foster culturally significant works and perform-
ances and set up social welfare and assistance schemes for the holders
of the rights they administer. The collection societies will also represent
their members in political debates by which their members’ interests are
concerned. Germany is often cited as an example of a country where

84
╇ Katz, ‘Copyright Collectives’, at 1.
85
╇ Internet and digital rights management may facilitate the identification, licensing and
distribution of music. Technologies that enable computerized automatic screening
and tracking of songs, jingles, movies, videoclips, etc. may guarantee easy monitoring
and enforcement.
86
╇������������������������������������������������������������������������������������Digital rights management refers to technologies which allow owners of digital con-
tent to control access to this content, to restrict its usage in a way specified by the
owner for instance in accordance with respect for copyright law (but also beyond). It
may also be used for accounting and payment purposes.
87
╇ Katz, A., ‘The Potential Demise’; Jenny, F., EC Competition Law Enforcement and
Collecting Societies for Music Rights: What Are We Aiming for? European University
Institute, Robert Schuman Centre for Advanced Studies, 2005 EU Competition
Law and Policy Workshop/Proceedings, available at www.iue.it/RSCAS/Research/
Competition/2005/200510-CompJenny.pdf. See also: Kretschmer ‘The Failure
of Property Rules’, at 132: In 1996 Polygram already reported that it had identi-
fied potential savings of $2.5 million per annum if royalties payable from Polygram
Records to Polygram Publishing were processed directly. In South Asia, multinational
music publishers have signed a Memorandum of Understanding, which allows the
major players to collect mechanical royalties themselves without having to support
a system of copyright societies along European lines. Cf.: ‘The Department is con-
tinuing to investigate the extent to which the growth of [Digital Rights Management
(DRM)] technologies warrants additional changes to the antitrust decrees against
ASCAP and [Broadcast Music, Inc.] BMI, including the possibility that the [col-
lecting societies] should be prohibited from collectively licensing certain types of
users or performances’ (Department of Justice, Memorandum of the United States in
Support of the Joint Motion to Enter Second Amended Final Judgment, United States
v. ASCAP, No.€41–1395 (S.D.N.Y. 2000), at fn. 10, available at www.usdoj.gov/atr/
cases/f6300/6395.pdf).
 Clearinghouse mechanisms: conceptual framework 89

this function is highly valued. However, one may doubt whether these
socio-cultural activities are necessarily performed under the umbrella
of collective rights administration.88
Finally, it is often submitted that collection societies exist for the
purpose of manifesting a counterforce to the market power of major
exploiters and distributors of musical material, such as broadcasting
bodies and record manufacturers.89

International and European copyright framework for CCS

International treaties do not provide clear guidance regarding the
management of rights. Article 5(2) of the Berne Convention stipu-
lates that the exploitation of rights is subject to the law of the place
of exploitation.90 Articles 11bis(2) and 13(1) of the Berne Convention
and Article€ 12 of the Rome Convention91 state that Member States
may determine the conditions under which certain rights may be exer-
cised. Article€2(6) of the Berne Convention adds that ‘protection shall
operate for the benefit of the author and successors in title’. Such an
approach leaves considerable freedom to individual states and hence at
the national level significant differences exist in legislation and practice
on rights management.
Initially, at the European level the management of copyright and
related rights gained little interest from the European Commission
and had only been addressed to a limited extent in some directives,92

88
╇ Kretschmer, ‘The Failure of Property Rules’, at 127, and 133–6.
89
╇ Case 127/73, Belgische Radio- en Televisieomroep (BRT) v. SABAM and NV Fonior
[1974] ECR 313 (hereinafter ‘BRT II’), at para. 9 and Fujitani, J.M., ‘Controlling
the Market Power of Performing Rights Societies: An Administrative Substitute for
Antitrust Regulation’, 72 California Law Review, 1984, 103–137, at 111–113.
90
╇ Berne Convention for the Protection of Literary and Artistic Works of September 9,
1886 (Paris Act as amended on 28 September 1979).
91
╇ International Convention for the Protection Performers, Producers Phonograms and
Broadcasting Organisation of October 26, 1961
92
╇ For instance in Articles 4(3) and (4) of Council Directive 92/100/EEC of 19
November 1992 on rental right and lending rights and on certain rights related to
copyright in the field of intellectual property, [1992] OJ L290/09 addresses collective
management as a model for the management of the right of equitable remuneration;
Article€ 9 of Council Directive 93/83/EEC of 27 September 1993 on the coordi�
nation€of certain rules concerning copyright and rights related to copyright applicable
to satellite broadcasting and cable retransmission, [1993] OJ L248/15 defines ‘col-
lecting society’ (‘any organization which manages or administers copyright or rights
related to copyright as its sole purpose or as one of its main purposes’ (Article 1(4))
and obliges collective management for cable distribution rights, but expressly leaves
the regulation of the activities of collecting societies to Member States; Recitals 18,
26 and 17 of Directive 2001/29/EC of the European Parliament and of the Council
of 22 May 2001 on the harmonization of certain aspects of copyright and related
90 Esther van Zimmeren

without addressing the �conditions of rights management as such.

However, between 199593 and 2002, the Commission widely consulted
stakeholders on the question of management of rights. This resulted
in a communication from the Commission concluding that there is a
‘need for complementary action on those aspects of collective man-
agement which affect cross-border trade and have been identified as
impeding the full potential of the Internal Market’.94 Especially with
the emergence of the digital environment, cross-border trade and goods
based on copyright and related rights has become common practice.
Often the exploitation will extend to more than one state. The lack of
common rules may be detrimental to both users and right holders, as it
may lead to legal uncertainty and rules may even be conflicting.
During the consultation process the Commission established a call
for EU-wide licensing 95 to overcome the legal hurdles that stand in the
way of efficient online licensing. EU-wide licensing would allow the
grant of a licence by a single collection society in a single transaction for
exploitation throughout the Community. Stakeholders already had been
seeking contractual and technological solutions to ensure European or
worldwide access to copyrighted works. For instance, the BIEM/IFPI
standard contract between authors’ collection societies and the asso-
ciation of phonogram producers concerns community-wide licensing
for mechanical reproduction rights.96 Collection societies have notified
several agreements intended to facilitate the grant of multi-repertoire,
multi-territorial licences for the transmission by electronic means,
like webcasting, to the Directorate General (DG) Competition for an
assessment in the light of Article 81 of the European Communities
(EC) Treaty.97 In addition, both the European Commission and the

rights in the information society, [2001] OJ L167/10 respectively respect and stimu-
late collective licensing arrangements, and require a higher level of rationalization
and transparency with regard to compliance with competition rules; and Article 4(c)
of Directive 2004/48/EC of the European Parliament and the Council of 29 April
2004 on the enforcement of intellectual property rights, [2004] OJ L195/16 recog-
nizes collective rights-management organizations as ‘persons’ to seek application of
the enforcement measures, procedures and remedies.
93
╇ European Commission, Green Paper, Copyright and Related Rights in the Information
Society, Brussels, 19 July 1995, COM(1995) 382 final.
94
╇ European Commission, ‘Communication Management of Copyright’, at 9.
95
╇ Ibid., at 8.
96
╇ The standard contract forms the basis for reciprocal agreements between collecting
societies. The most recent contract expired on 30 June 2000, but has not been renewed
yet and societies and record producers are still operating under the provisions of
the latest standard contract, available at: www.biem.org/downloads/MenuItems/109/
BIEM/Standard%20Contract%20English.pdf (Doc. No. 98/1490, 30 June 1998).
97
╇ Three major agreements have been notified. (1) The Santiago Agreement: nearly all
the major authors’ collection societies concluded a reciprocal agreement for music
 Clearinghouse mechanisms: conceptual framework 91

European Court of Justice (ECJ) have examined statutes and licensing

practices of several European collection societies on their compliance
with competition law.98
In July 2005 the European Commission issued a staff working docu-
ment on the cross-border collective management of legitimate online
music services.99 It proposed a rather radical model allowing right hold-
ers across the EU to adhere to any collection society of their choice
for the EU-wide licensing of the use made of their works. This system
would introduce choice and competition at the level of right holders and
collection societies.100 However, there is no consensus as to whether this
model would actually remove the legal hurdles that stand in the way

╇performance rights, which allows them to issue multi-territorial licenses of public

performance rights to be used on-line. BUMA and SABAM submitted undertak-
ings. The Commission invited parties for comments (Notice published pursuant to
Article 27(4) of Council Regulation (EC) No. 1/2003 in Cases COMP/C2/39152-
BUMA and COMP/C2/39151-SABAM (Santiago Agreement-COMP/C2/38126),
but has never issued a formal decision. (2) The Barcelona Agreement: a standard
bilateral agreement to be entered into between all the collection societies member of
BIEM to allow for the licensing of mechanical reproduction rights for exploitation
of the musical compositions in their repertoire by electronic means, including the
Internet (Notification of cooperation agreements, case COMP/C-2/38.377-BIEM
Barcelona Agreements, [2002] OJ C132/18. (3) The Simulcasting Agreement:
users may obtain a European Economic Area (EEA)-wide license from any soci-
ety within the EEA clearing the remuneration rights of phonogram producers for
the simultaneous on-line transmission by radio and TV stations of sound record-
ings included in their broadcasts of radio and TV signals. This agreement combines
freedom of choice with increased transparency obligations for collection societies.
On 31 January 2006, the European Commission sent a statement of objections to
CISAC and its members concerning parts of the CISAC model contract and its
implementation at bilateral level by CISAC members containing membership and
territorial restrictions and the network effects of the agreements. See: Press Release,
Brussels, 7 February 2006, MEMO/06/03, available at http://europa.eu.int/rapid/
and for CISAC’s reaction: Press Release, 14 April 2006, available at www.cisac.com.
No formal decision had been issued at the time of writing.
98
╇�����������������������������������������������������������������������������������This case-law will be discussed below in Section ‘EU and US competition law frame-
work for CCS’.
99
╇ European Commission, Commission Staff Working Document, Study on a Community
Initiative on the Cross-border Management of Copyright, Brussels, 7 July 2005. This
document has been reviewed and re-issued: European Commission, Commission
Staff Working Document, Impact Assessment Reforming Cross-border Management of
Copyright and Related Rights for Legitimate Online Music Services, Brussels, 11 October
2005, SEC(2005) 1254.
100
╇ See also: Lueder, T., Working toward the next generation of copyright licenses, 14th Fordham
Conference on International Intellectual Property Law & Policy, 20–21 April 2006
(on file with the author). Lueder is Head of the Copyright Unit, DG Internal Market
and Services of the European Commission. And: Vinje, T. and Niiranen, O., The
Application of Competition Law to Collecting Societies in a Borderless Digital Environment,
European University Institute, Robert Schuman Centre for Advanced Studies, 2005
EU Competition Law and Policy Workshop/Proceedings, available at www.iue.it/
RSCAS/Research/Competition/2005/200510-CompVinje.pdf.
92 Esther van Zimmeren

of efficient online licensing and on how it would work in practice.101

Following the staff working document, the Commission adopted a
Recommendation on 12 October 2005,102 which proposes a less radi-
cal approach. It recommends the elimination of territorial restrictions
and customer allocation provisions in existing bilateral reciprocal
agreements while leaving right holders who do not wish to make use
of those agreements the possibility to entrust the management of their
online rights for EU-wide licensing to a collective rights manager of
their choice.103 The definition of a collective rights manager is rather
broad, meaning ‘any person [my italics] providing the services set out
in point (a) [the grant of licences to commercial users, the auditing and
monitoring of rights, the enforcement of copyright and related rights,
the collection of royalties and the distribution of royalties] to several
right-holders’. Hence, in principle collective rights management could
also be carried out by other organizations that the existing national
copyright collection societies.
The recommendation also includes some basic provisions on govern-
ance, transparency, dispute settlement and accountability of collective
rights managers. Contrary to the Commission’s expectation, first expe-
riences seemed to indicate that instead of stimulating existing societies
to compete to be elected by right holders as their EU-wide licensor of
choice for online rights, the recommendation triggered stakeholders to
create new licensing platforms that pooled several publishers’ or soci-
eties’ repertoires.104
At the time of writing the Commission is monitoring the development
of Europe’s online music sector in the light of the ‘Recommendation on
collective cross-border management’. The Commission has invited all
interested stakeholders to submit views and comments on their initial
experience with the Recommendation and, in general, on their views on
how the online music sector has developed since its adoption. More spe-
cifically, questions are asked regarding the set up of EU-wide licensing
arrangements and initiatives of national CCS to improve �transparency

101
╇ Tuma, ‘Pitfalls and Challenges’, at 227–8.
102
╇ European Commission, Commission Recommendation of 18 May 2005 on collective
cross-border management of copyright and related rights for legitimate online music ser-
vices [2005] OJ L276/54 and Press Release, Brussels, 12 October 2005, IP/05/1261,
available at http://europa.eu.int/rapid/ (hereinafter ‘Recommendation on collective
cross-border management’).
103
╇ European Commission, ‘Recommendation on collective cross-border management’,
at point 1(e).
104
╇ Lueder, ‘Working Toward’, at 17–18.
 Clearinghouse mechanisms: conceptual framework 93

and good governance.105 At the moment of finalizing this chapter, we

were still awaiting the outcome of the consultation.

EU and US competition law framework for CCS

Introduction
Under EU law, copyright collection societies have to respect Article 81
and 82 of the EC Treaty. Article 81(1) of the EC Treaty prohibits agree-
ments between undertakings which restrict competition and affect
trade between Member States. CCS are subject to compliance with
Article 82 of the EC Treaty, where a society is constituted as a legal
monopoly or under 86(1) of the EC Treaty where it is granted special
rights by national legislation.106 Collection societies are ‘undertakings’
within the meaning of Article 81(1) and 82 of the EC Treaty, because
they participate in the commercial exchange of services and are there-
fore engaged in the exercise of economic activities.107 National CCS
enjoy a dominant and in most cases even monopolistic position in their
respective markets. Collection societies in the EU have a virtual 100%
share of the market in their respective territories, as nearly all individ-
ual holders entrust their rights in each Member State to one collection
society. The ECJ has acknowledged this dominant position resulting
from their (legal or) de facto monopoly position.108 In this respect, they
are the ‘usual suspects’109 and have a special responsibility in the way
they exploit this position.

105
╇ European Commission, Call for comments on Commission Recommendation of 18 October
2005 (2005/737/EC) on collective cross-border management of copyright and related rights
for legitimate online music services, January 17, 2007, available at http://ec.europa.eu/
internal_market/copyright/docs/management/monitoring_en.pdf.
106
╇ The ECJ interprets Article 86(2) of the EC Treaty restrictively, as it permits – in
certain circumstances – derogation from the competition rules. ‘Private undertak-
ings may come under that provision, but they must be entrusted with the operation
of services of general economic interest by an act of public authorityâ•›.â•›.â•›.â•›T hat is not
the position in the case of an undertaking to which the state has not assigned any
tasks and which manages private interests, including intellectual property rights
protected by law.’ BRT II, at paras. 20–3. Mestmäcker, E-J., Collecting Societies,
European University Institute, Robert Schuman Centre for Advanced Studies, 2005
EU Competition Law and Policy Workshop/Proceedings, available at www.iue.it/
RSCAS/Research/Competition/2005/200510-CompMestmaecker.pdf, at 3–4.
107
╇ Case 7/82, Gesellschaft für müsikalische Aufführungs- und mechanische Vervielfältigungsrechte
(GVL) v. Commission [1983] ECR 483 and BRT II.
108
╇ GVL v. Commission, at paras. 44–45 and BRT II, at para. 5.
109
╇ Allendesalazar, R., Vallina, R., Collecting Societies: The Usual Suspects, European
University Institute, Robert Schuman Centre for Advanced Studies, 2005 EU
Competition Law and Policy Workshop/Proceedings, available at www.iue.it/
RSCAS/Research/Competition/2005/200510-CompAllendesalazar.pdf.
94 Esther van Zimmeren

The US has two major competing performing rights organizations,

the American Society of Composers Authors and Publishers (ASCAP),
established in 1914 and Broadcast Music, Inc. (BMI), dating from
1939.110 A failure of negotiations on a substantial increase of ASCAP’s
licence fees between ASCAP and its licensees prompted the formation
of BMI: some broadcasters boycotted ASCAP and created BMI, which
became (surprisingly) successful.111 ASCAP is an unincorporated non-
profit association. BMI is a non-profit corporation owned entirely
by broadcasters. The ASCAP and BMI operate on the basis of con-
sent decrees:112 settlements between the Antitrust Division of the US
Department of Justice (DOJ) and the collection societies.
The anti-competitive concerns which might occur with regard to
CCS will be described under the following three headings: (i) the rela-
tionship between the CCS and their members, the right owners; (ii)
the relationship between CCS and the users of the works, the licensees;
(iii)€and the reciprocal agreements between different CCS.

Relationship between CCS and members

The collection societies generally act as trustee for their members, the
right owners, managing their rights and representing their economic,
social and cultural interests. This does not mean that copyright col-
lection societies in the EU can oblige a right holder to assign all pre-
sent and future rights. This would amount to an abuse of the collection
society’s dominant position within the meaning of Article 82(a) of the
EC Treaty, as it imposes an unfair trading restriction.113 Moreover, a

110
╇�������������������������������������������������������������������������������The Society of European Stage Authors & Composers (SESAC) (1930) is the small-
est of three performing rights organizations in the United States. Whereas ASCAP
and BMI operate on a not-for-profit basis and distribute all performance royalty
income to their composer and publisher affiliates (minus an administrative fee),
SESAC retains a certain amount of royalty income as profit. See: www.sesac.com/.
111
╇ T hough some authors seem to suggest that broadcasters wanted an alternative source
of music licenses, even if the immediate dispute over ASCAP’s license fee could have
been resolved. See: Besen, S.M., Kirby, S.N., and Salop, S.C., ‘An Economic Analysis
of Copyright Collectives’, 78 Virginia Law Review 1992, 383–411, at 401–2.
112
╇ For an overview of the official sources of the former consent decrees, see for
instance: Einhorn, M.A., Intellectual property and Antitrust: Music Performing Rights
in Broadcasting, 2002, available at http://papers.ssrn.com/sol3/papers.cfm?abstract_
id=336045, at 1, at fn. 1–7.
113
╇European Commission, Decision of 6 August 2002, case COMP/C2/37.219, Banghalter
& Honem Christo v. SACEM (‘Daftpunk’-decision), available at http://europa.eu.int/
comm/competition/antitrust/cases/decisions/37219/fr.pdf. Furthermore: BRT II,
paras. 11–12; European Commission, Decision 71/224/EEC of 20 June 1971, case
IV/26.760, GEMA I [1971] OJ L134/15; European Commission, Decision 72/268/
EEC of 6 July 1972, case IV/226.760, GEMA II [1972] OJ L166/22 and European
Commission, Decision 82/204/EEC of 4 December 1981, case IV/29.971, GEMA III
[1981] OJ L94/12. The decisive criterion is whether the conditions imposed on the
 Clearinghouse mechanisms: conceptual framework 95

�
collection society with a dominant position on the relevant market is
not allowed to exclude right holders from other EU Member States
from becoming a member, or to impose discriminatory terms.114
The European authorities have, however, left considerable freedom
to the CCS in determining the rules on the distribution of royalties. In
contrast, the US consent decrees initially constrained the weights used
to divide the royalties collected (by ASCAP) amongst their members
for different uses of music. On top of that, rules for voting, performance
surveys and mechanisms for resolving disputes among members were
prescribed. These rules were considerably liberalized in 2001, when
the consent decree was amended, allowing ASCAP to decide on the
weighting method, as long as the selected method would be applied
consistently and would be fully and clearly disclosed.115

Relationship between CCS and users

As has been stated above, blanket licences for copyright users are the
centerpiece of copyright collection. In Tournier, the ECJ stated that
blanket licences charging flat royalty-rates from users in principle do
not violate Article 82 of the EC Treaty, as long as no other method
might be capable of protecting the interests of the members of the copy-
right collection society, without thereby increasing the costs of man-
aging contracts and monitoring the use of protected creative works.116
Moreover, European collection societies may not engage in a concerted
practice leading to systematic refusals to grant direct access to their
repertoires by users located in foreign territories. Despite the fact that
reciprocal agreements as such may be lawful,117 European collection
societies may not retain any restrictive practices that strengthen anti-
competitive effects. This can be explained by the fact that also domin-
ant or monopolistic undertakings cannot merely refuse to license a user

members exceed the limits absolutely necessary for effective protection or whether
they unnecessarily limit the individual copyright holder’s freedom to dispose of his
or her work. Allendesalazar &Vallina, ‘Collecting Societies: The Usual Suspects’,
at€13–21.
114
╇GVL v. Commission, at paras. 54–56; European Commission, Decision of
29€October€1981, case IV/29.839, GVL [1981] OJ L370/49 and European Commission,
Decision 71/224/EEC of 20 June 1971, case IV/26.760, GEMA I [1971] OJ L134/15.
The requirement for foreign nationals to have their fiscal domicile in Germany and
restricting membership of the supervisory council to German nationals constitute
discriminatory terms.
115
╇ United States of America v. ASCAP, Second Amended Final Judgment, June 11, 2001,
Civ. Action No. 41–1395 (S.D.N.Y. 2001), Section XI(B) (hereinafter ‘AFJ2’). See
also: Einhorn, ‘Intellectual Property and Antitrust’, at 18.
116
╇ Case 395/87, Ministère public v. Jean-Louis Tournier [1989] ECR 2521, at para. 44.
117
╇ See below, section ‘Reciprocal agrrements between CCS’.
96 Esther van Zimmeren

in their own territory without a legitimate reason either. Nevertheless,

a refusal to license directly to foreign users could be justified by the
impracticability of setting up a collective administration system in
another country.118
Similarly, under the US consent decrees and a number of judgments,
the practice of blanket licensing has been preserved. In 1979 the US
Supreme Court held that the issuance of blanket licences by ASCAP
and BMI at fees negotiated by them is not price fixing per se unlawful
under the antitrust laws, but should be considered under the rule of
reason.119 It is argued that the use of blanket licences does not exclude
price competition, because the blanket licences are non-exclusive and
cannot prevent right holders from individually administering their
rights.120 Users may still directly approach individual right holders, who
would thus remain independent in setting a competitive price for indi-
vidual licensees willing to deal with them directly. Hence, the blanket
licence would not result in a restraint of trade.121 This view is remark-
able because in theory price competition may be available, but in prac-
tice obtaining the licence directly from the right owner will not be a
viable alternative for most users.122
CCS in Europe and the US have regularly refused special authoriza-
tions for sub-groups of rights, or several sub-groups corresponding to a
specific repertoire, such as the UK and US repertoire, and stick to the
blanket licences. According to the ECJ this refusal does not have the
object or effect of restricting competition. It could only be criticized if
the differentiation in sub-groups might be capable of attaining the legit-
imate aim of safeguarding the rights and interests of the members of the
collection societies, without thereby increasing the costs of managing
contracts and monitoring the use of protected works.123 In the US, how-
ever, ASCAP and BMI have been obliged to issue the blanket licences
to selected groups of music users, such as radio and television broad-
casters. To these groups ASCAP shall offer a ‘per-programme licence’
or ‘mini-blanket’ that makes the full catalogue of rights Â�available on an

118
╇ Ministère public v. Tournier, at para. 24 and cases 110/88, 241/88 and 242/88, François
Lucazeau et al. v. Société des Auteurs, Compositeurs et Éditeurs de Musique (SACEM)
et al. [1989] ECR 2811, at para. 18.
119
╇ Broadcast Music, Inc. v. Columbia Broadcast System, Inc., 441 US 1, at 4 (1979).
120
╇ See, for instance: AFJ2, Section VI.
121
╇ Buffalo Broadcasting Co. v. ASCAP, 744 F.2d. 917 (2d Cir. 1984) and Columbia
Broadcast System, Inc. v. ASCAP, 620 F.2d 930, 936 (2d Cir. 1980), cert. denied, 450
US 970 1981. See also: Einhorn, ‘Intellectual Property and Antitrust’, at 10–11, 18
and Fujitani, ‘Controlling the Market Power’, 103–37.
122
╇ Fujitani, ‘Controlling the Market Power’, at 123–9.
123
╇ Ministère public v. Tournier, at paras. 28–33 and 45.
 Clearinghouse mechanisms: conceptual framework 97

individual programme basis. According to an amendment to the exist-

ing consent decrees (the so-called ‘Second Amended Final Judgment’
or ‘AFJ2’) ASCAP should grant genuine licence alternatives to more
user groups, such as background music providers and online transmit-
ters (‘per-segment licences’).124
Furthermore, as a general rule, ASCAP and BMI are not allowed to
discriminate in prices or terms charged to similar users.125
Another important issue in the relationship between copyright col-
lection societies and users that has been subject to review in the EU
and the US is the (reasonable) level of tariffs charged to the licensees.
The ECJ observed that one of the most marked differences between
copyright collection societies lies in the level of operating expenses. It
held that it cannot be ruled out that it is the lack of competition in
the market that accounts for high administrative costs and hence the
high level of royalties.126 If a collection society establishes unfair condi-
tions by imposing appreciably higher tariffs than those applicable in
other European Member States, the collection society abuses its dom-
inant position in violation of Article 82 of the EC Treaty, unless the
differences are justified by objective reasons.127 This appears to be a
rather unreliable criterion, because all CCS in the EU have a dominant
po�sition and hence a comparison of the tariffs in the different Member
States will not disclose information on the level of fees that is generally
commensurate with the value that a competitive market would place on
collective rights administration. In spite of that, the ECJ held in another
case that whether the remuneration is equitable is to be assessed, in par-
ticular, in the light of the value of the use in trade.128
In the US ‘rate courts’ have been appointed to decide what fees should
be paid for the commercial use of music when users and ASCAP or
BMI are unable to agree on the royalty rate.129 The US District Court

124
╇ AFJ2, Section VII(A). Cf.: Fels, A., Walke, J., Australian Intellectual Property Law,
Competition and Collecting Societies: Efficiency, Monopoly, Competition and Regulation,
European University Institute, Robert Schuman Centre for Advanced Studies, 2005
EU Competition Law and Policy Workshop/Proceedings, available at www.iue.it/
RSCAS/Research/Competition/2005/200510-CompFels.pdf.
125
╇ Einhorn, ‘Intellectual Property and Antitrust’, at 7–8 and AFJ2, Section VIII(A).
126
╇ Ministère public v. Tournier, at para. 42 and Lucazeau v. SACEM, at para. 29.
127
╇ Ministère public v. Tournier, at paras. 37–8 and Lucazeau v. SACEM, at paras. 24–25.
Allendesalazar & Vallina, ‘Collecting Societies: The Usual Suspects’, at 3–11.
128
╇ Case C-245/00, Stichting ter Exploitatie van Naburige Rechten (SENA) v. Nederlandse
Omroep Stichting (NOS) [2003] ECR I-1251, at para. 37.
129
╇ Already under the US Copyright Act of 1976 another specialized institution was
established, the Copyright Royalty Tribunal, to set royalty rates for compulsory
licensing fees to be paid to copyright owners for mechanical rights, and for blanket
performance rights for jukeboxes and secondary cable transmission.
98 Esther van Zimmeren

for the Southern District of New York130 found that the appropriate
benchmark for setting the ASCAP’s rate at a reasonable, competitive
level was the fee set by BMI, ASCAP’s ‘competitor’.131 This view is con-
troversial as well.132 The case law and criticism on both the approach
of the ECJ and the US District Court for the Southern District of New
York confirm once more that royalty setting is a highly complicated and
sensitive area.

Reciprocal agreements between CCS

Reciprocal representation agreements between CCS are not in them-
selves restricting competition in the sense of Article 81(1) of the EC
Treaty. This might be different if the agreements would explicitly stipu-
late that copyright management societies decide not to allow di�rect
access by users established in another territory. As has been stated
above, even if such clauses are removed from the agreements, copy-
right collection societies may not retain such exclusivity conditions by
means of a concerted practice.133 The agreements appear economically
justified in a context where the collection societies would otherwise be
obliged to organize their own management and monitoring system in
other countries.134
In the Simulcasting-decision, the European Commission adapted
these principles to the on-line environment. The absence of territorial
boundaries in this environment enables users to choose any collec-
tion society in the EEA which is a member of the one-stop licensing
mechanism that is established for the delivery of EEA-wide licences.
To increase transparency, the tariff which covers the royalty was sep-
arated from the fee related to the administrative costs. This should
enable users to recognize the more efficient societies and allow them
to apply€ for a licence from the societies that grant licences at the
lowest€cost.135

130
╇ The US District Court for the Southern District of New York is ASCAP’s fee-setting
Rate Court for license disputes.
131
╇ American Society of Composers Authors and Publishers v. Showtime/The Movie Channel,
912 F.2d 563 at 569–70 and 577–8 (F.2d 1990).
132
╇ Besen et al., ‘An Economic Analysis’, at 405–7 and Einhorn, ‘Intellectual Property
and Antitrust’, at 15.
133
╇ Ministère public v. Tournier, at paras. 20–21.
134
╇ Ibid., at paras. 20–6 and Lucazeau v. SACEM, at paras. 14–18.
135
╇ European Commission, IFPI Simulcasting, Decision of 8 October 2002, case
COMP/C2/38.014 [2003] OJ L107/58, at para. 71–107.
 Clearinghouse mechanisms: conceptual framework 99

Criticisms and concerns regarding CCS

During the consultation process initiated by the European Commission,
both users and right holders criticized the operation and accountability
of the copyright collection societies.136 Criticisms from users focused on
the tariffs, the administrative fees charged by the societies, the length
of the negotiations, the alleged shortcomings in the internal decision-
making process, the apparent lack of transparency regarding the pricing
policy, the supervision of collection societies137 and the limited access to
courts or arbitration.138 Most right owners, on the other hand, favour a
greater influence on the distribution of royalties and more flexibility on
the part of the CCS regarding the acquisition of rights. Moreover, right
holders with sufficient bargaining power, like major phonogram produ-
cers argue that digitization, in facilitating watermarking, identification
and tracking of the use of works, has empowered them to individually
control the licensing and royalty payment process and question the role
of collective rights management as such.139
In response to these concerns, the European Commission in its
Communication of 2004 envisaged greater common ground on a num-
ber of issues in order to achieve a level playing field at Community
level.140 More in general, the Commission was concerned about the
establishment and legal status of copyright collection societies, the
persons that may establish a society, the minimum number of repre-
sented right owners, and the necessary proof of efficiency, operability

136
╇ On May 11, 2002, the US Subcommittee on Courts, the Internet, and Intellectual
Property of the Committee on the Judiciary House of Representatives also organized
a Hearing on Public Performance Rights Organizations. This Hearing especially
mirrored the concerns on accountability, transparency and reasonable tariffs. The
appointment of separate ‘rate courts’ to decide on the licensing fees in case of dis-
putes was considered effective. See: US Subcommittee on Courts, the Internet, and
Intellectual Property of the Committee on the Judiciary House of Representatives,
Hearing on Public Performance Rights Organizations, 109th Congress, First Session,
11€M ay 2005, Serial No. 109–25, available at www.house.gov/Â�judiciary/. Nevertheless,
several US authors have suggested the establishment of a system of administrative
regulation, comparable to for example Germany or the UK, as a safeguard against
potential monopolistic abuses by the US collection societies. See, for instance:
Fujitani, ‘Controlling the Market Power’, at 129–37.
137
╇�������������������������������������������������������������������������������Rochelandet suggested on the basis of an empirical study that when more exter-
nal supervision is exercised CCS appear to manage the rights more efficiently.
Rochelandet, F., Are copyright collecting societies efficient? An evaluation of collective
administration of copyright in Europe, The Society for Economic Research on Copyright
Issues, Madrid: Inaugural Annual Congress 2002, available at www.serci.org/2002/
rochelandet.pdf.
138
╇ European Commission, ‘Communication Management of Copyright’, at 16.
139
╇ Ibid. 140
╇ Ibid, at 4, 18–19.
100 Esther van Zimmeren

and accountability.141 These issues should be subject to rules of good

governance.
In the interest of users, collection societies should respect transpar-
ency with regard to tariffs and licensing conditions, adopt reasonable
conditions, and options for internal control, including internal dispute
settlement mechanisms, should be available. On top of this, adequate
external control mechanisms concerning the behaviour and functioning
of the societies, their tariffs and licensing conditions and internal dis-
pute settlement mechanisms should exist. This role could be played by
specialized tribunals, administrative authorities or arbitration boards.
The societies, often the only gatekeeper of the market for collective
management of rights, should also observe principles of good govern-
ance, non-discrimination, transparency and accountability vis-à-vis
their right owners. These principles should apply to the acquisition of
rights, the conditions of membership (including termination of mem-
bership) and representation, access to internal documents and finan-
cial records concerning the licensing revenue, distribution of licensing
revenue and administrative deductions, (genuine) influence of right
holders on the decision-making process and on the social and cultural
policy. In addition, right holders should have a certain degree of flexi-
bility regarding the duration and scope of the mandate and in prin-
ciple, unless the law provides otherwise, have the possibility – if they
so desire – to manage some of their rights on an individual basis. The
Commission intended to propose a legislative instrument on these ele�
ments of collective management and good governance of the collection
societies. Except for some minor suggestions in the above-mentioned
recommendation of October 2005, the Commission has not realized
this yet.

Lessons from CCS for the PRCCH

The analysis shows that even though CCS have a long history, their role
in copyright management is not uncontroversial. Hence, extensive dis-
cussions are necessary to examine the actual value and legitimacy of a
PRCCH and its costs and benefits before actually proposing the estab-
lishment of PRCHHS for reasons of economies of scale and transaction

141
╇ The Commission recognizes that some Member States have already adopted or
initiated new legislation aiming at rendering the management of rights by copy-
right collection societies more transparent and improving their accountability. The
Communication of the European Commission of 2004 refers to France, Belgium, the
Netherlands, Luxembourg and Portugal (European Commission, ‘Communication
Management of Copyright’, at 15).
 Clearinghouse mechanisms: conceptual framework 101

cost savings. Prior to promotion of PRCCHs, its superiority as a solu-

tion over other solutions such as bilateral licences, cross-licences,
research exemptions and patent pools should be evaluated. Obviously,
the evaluation may differ according to the actual circumstances, such
as the patenting and licensing strategy in a specific field of technology,
geographical region, market conditions etc.
In this section, I would like to provide some general principles on
how a PRCCH can be organized and function, based on the case law
and the academic and political debate in the US and the EU on copy-
right collection societies.

Good governance
Like CCS, PRCCH should observe principles of good governance,
non-discrimination, transparency and accountability vis-à-vis patent
owners and licensees. To guarantee respect for these principles, internal
and external supervision mechanisms should be established.
Adequate functioning of collective administration mechanisms in
a patent context requires effective external regulatory oversight and
access to (specialized) courts or arbitration. Competition authorities
should regularly review (both ex ante and ex post) the justification for the
establishment of collective administration mechanisms, their eligibility
in the light of changing circumstances (new technologies, economic
theories, previous experiences with the performance of the clearing-
house, changing market conditions etc.) and whether the royalties and
licensing terms comply with market conditions.

Competition
In order to safeguard quality and price competition there is preferably
more than one patent royalty collection clearinghouse within a specific
territory that delivers search, licensing, collection and distribution,
monitoring and enforcement services. In this scenario, right owners
are not forced to assign or licence their patent rights exclusively to one
clearinghouse, but remain free to license their rights non-exclusively
themselves or to other clearinghouses for further sub-licensing. This
dynamic allows quality and price competition in the interest of both
patent owners and users. In the case of competing PRCCHS rational
market players will turn to the most efficient PRCCH. However, if for
reasons of economies of scale for licensing, monitoring and enforce-
ment and transaction costs savings it will turn out to be more efficient
to have only one PRCCH, the free market will inevitably move into that
direction. Moreover, equally important is that licensees may encounter
difficulties if they will have to approach several PRCCHs in order to
102 Esther van Zimmeren

clear access to all the relevant patents. This would plead for the estab-
lishment of only one PRCCH or a limited number of clearinghouses per
country or for a particular technology.
Furthermore, the European experience with national monopolis-
tic copyright collection societies teaches us that despite the fact that
patents are granted for a specific national territory, a patent royalty
collection clearinghouse had better not define its territory too narrow.
PRCCHs should consider at least EU-wide or worldwide multi-terri-
torial licences. Patent owners and users will be free to make use of the
services of a clearinghouse in another country as well. As long as the
geographical scope of the licence and the patents involved are clearly
stated and described in the licence, it may cover several jurisdictions.
Indeed, this is also a common practice in bilateral licences. Search,
licensing, monitoring and enforcement services are in principle not
disturbed by geographical boundaries. I acknowledge that this will
require a highly educated and experienced, international legal staff. A
solution would be to form an exchange network with clearinghouses in
other countries to swap experience and knowledge. Patent royalty col-
lection clearinghouses would thus compete on the provision of cross-
border services.

Licensing practices
The centerpiece of collective administration of rights in music, the
‘blanket licence’, is definitely not a desirable feature for a PRCCH.
Already in copyright there is no consensus on the effectiveness of this
instrument. In the US, the amended consent decrees explicitly state
that the CCS should grant genuine licence alternatives to user groups.
If royalties would have to be paid without considering the actual inven-
tions used and the number of times they are being used, but on the
basis of a flat-royalty rate covering unlimited access and use to the ‘rep-
ertoire’ of all patent right holders, it is highly unlikely that many licen-
sees and patent owners would be interested in the clearinghouse. For
licensees, a blanket licence arrangement would only be beneficial if the
flat-royalty rate would be set at such a low level that – in all likelihood€–
it would not be acceptable to patent owners. In other words, it is hard
to reach a fair balance between the interests of the right owners and the
interests of the technology users in setting rates for a blanket licence.
This is further complicated by the fact that right owners in genetics at
one occasion may well be technology users applying for a licence with
the PRCCH the next time. In such circumstances, ultimately a blanket
licence might even entail right owners paying for access to their own
patented technology. This is less likely in the area of copyright.
 Clearinghouse mechanisms: conceptual framework 103

On top of this, the interests of the highly diverse community of

rights owners should be balanced. Patent owners want a reward for
their investments and not a social security system for inventors with
minor, less valuable patents. Moreover, generally, people tend to value
their own property rights higher than their competitors’. A blanket
licences system would create a risk of the royalty collection clearing-
house becoming a ‘market for lemons’142 where ‘masterpieces’ are not
compensated appropriately and inventors of ‘mediocre’ advances would
receive excessive remunerations.143
Clearinghouses are not allowed to discriminate in prices or licens-
ing terms charged to similar users. This will not withhold the PRCCH
from distinguishing between different kinds of users, uses and product
profiles through flexible standard licences. Such standard licences may
be appropriate ‘to protect the interests of the right owners and different
types of users without thereby disproportionally increasing the costs of
managing contracts and monitoring the use of protected inventions’.144
Due to the complexity of patents, of genetic diagnostics, and the variety
of actors performing diagnostic testing, patent monitoring and enforce-
ment is a costly endeavour anyway. Here economies of scale, network
effects and visibility arguments maybe a more viable argument than for
copyright.

Royalties
Royalties charged should be fair, reasonable and non-discriminatory.
But what is fair and reasonable and who decides what is fair and reason-
able? Balancing all the interests involved is not an easy task. However, to
start with, transparency can be improved by separating the tariff which
covers the royalty from the fee related to the administrative costs. For
copyright, the ECJ held that whether the remuneration is equitable is
to be assessed, in particular, in the light of the value of the use in trade.
For patents, this will be a very complex task which requires the input of
independent experts. In the US, to decide what fees should be paid for
the use of music if the parties involved are unable to agree on a royalty
rate, rate courts have been appointed. Within the scope of the PRCCH,
such conflicts may be solved by way of internal �dispute-resolution
mechanisms, e.g. mediation or arbitration, or one may consider exter-
nal review by way of patent tariff courts.

142
╇ Akerlof, G.A., ‘The Market for “Lemons”: Quality Uncertainty and the Market
Mechanism’, 84 Quarterly Journal of Economics, 1970, 488–500.
143
╇ Cf. Katz, ‘Copyright Collectives’, at 30–1.
144
╇ For this criterion, see also: Ministère public v. Tournier, at paras. 28–33, 44–45.
104 Esther van Zimmeren

With regard to the royalty distribution to the right owners, the clea�
ringhouse should design a reasonable weighing method. The copyright
case law does not provide detailed criteria, but as long as the selected
method would be applied consistently and would be fully and clearly
disclosed, the PRCCH will probably be in line with competition law.
The best way will probably be to compensate right owners on the basis
of an auditing mechanisms managed by the clearinghouse.145

5.4 Building a PRCCH in genetic diagnostics

The typology for clearinghouses and the principles described above
inspired by the CCS leave quite some leeway for the final set up of
a PRCCH in genetic diagnostics. Some key building blocks will be
described below.

Legal status and infrastructure

The PRCCH in genetic diagnostics would act as an independent inter-
mediary or agent. It would not be a society representing the interests
of its members, as copyright collection societies do, but would treat the
interests of the various right owners and users of the patented technol-
ogy on an equal footing. It could be set up as a neutral public agency
by a national or international organization, as a public-private part-
nership, or as a private initiative on a non-profit or profit basis. The
clearinghouse could in principle be implemented as a voluntary scheme
or as a statutory framework on a mandatory basis. For copyright col-
lection societies, the European Commission considered the legal status
not very relevant.146 Still further research is necessary to decide on the
most appropriate legal model for the PRCCH in view of the various
legal traditions and taking into account the interests of the patent hold-
ers, the licensees and the clearinghouse in an effective management of
the patent rights.
For the moment, I prefer voluntary private initiatives or public-
�private partnerships over a public, statutory, compulsory regime. Also
private organizations can be charged with public duties, like the promo-
tion and distribution of innovation through licensing management and
access to health care services. Prices and other licensing terms are best
determined on the basis of market conditions and government agencies
generally tend to have limited knowledge and experience in this regard.

╇ See also Section ‘Access, use, reporting, royalty collection and disbursement’.
145

╇ European Commission, ‘Communication Management of Copyright’, at 18.

146
 Clearinghouse mechanisms: conceptual framework 105

Nevertheless, external supervision on the price-setting procedure is a

prerequisite.
Various competing national or regional clearinghouses (European,
North American, Asian, African etc.) could be set up to perform the
services with respect to identification, matching, standardized licensing,
royalty collection and distribution, monitoring and enforcement. Even a
kind of network of decentralized clearinghouses could be established and
coordinated by a worldwide, overreaching ‘umbrella’ organization. Such
a global approach would, on the one hand, be cost-�effective and could,
on the other hand, feed the incentive of patent holders to voluntarily par-
ticipate in a model limiting the points of registration with good visibility
for technology users. Certainly, due to the global character of the genet-
ics marketplace, potential licensees would be better served with a global
checkpoint for the existing patent rights and cross-border licences.

Licensing practices
Patent holders in favour of collective administration select the patent rights
they wish to manage through the licensing scheme of the �clearinghouse.
Patents in the clearinghouse can be substitutes or complements. In prin-
ciple, the patent licence may take many legal forms. In any case, patent
owners would remain free to license directly to �licensees outside the scope
of the clearinghouse. The licence to the clearinghouse could refer to all,
or part of the exploitation rights (manufacturing, distribution etc.).
If the PRCCH would operate on the basis of standard licences,
this would diminish the transaction costs. However, in all likelihood,
reaching agreement on the licensing terms will be one of the most
complicated and burdensome hurdles to be taken by the initiators of
a clearinghouse. Blanket licences used in copyright, praised (but also
criticized) for their simplicity and easy enforcement, will probably not
be accepted by patent proprietors. Bilateral patent licences are very
complex and require a subtle consideration of all the interests involved.
For instance, licensee’s indulgence with regard to the basis for royalty
calculation may be compensated by flexible minimum manufacturing
quantities and a sliding scale of royalties; the obligation for the licen-
see to grant back improvements to the licensor may be confined to
a narrow definition of improvements in accordance with the type of
invention; and so on. Here, one may draw on the experience of Science
Commons in its Biological Material Transfer Project147 in developing

╇ See above, at 20.

147
106 Esther van Zimmeren

differentiated material transfer agreements together with the stakehold-

ers concerned.
The basic criteria for differentiation of the standard licences could
be the nature of the user, the objective of the use and the profile of
the eventual product to be developed by the licensee. In practice, this
would mean that the standard licence agreements are linked to elec-
tronic forms with specific parameters. Such forms would include tick-off
boxes related to the nature of the user, the specific goal of the intended
use (research, product development (improvement/new product), diag-
nostic testing etc.), geographical scope of application, followed by a list
of the various patented genetic inventions (DNA sequences, mutations,
proteins, technical applications etc.). Users from developing and devel-
oped countries could all use the clearinghouse services, but it would be
opportune to bargain for special standard licences for humanitarian use
at low or zero cost.
Industry standards could be employed as an administering tool for
managing the royalty collection clearinghouse. Industry standards are
technical specifications relating to a product or an operation, which
are recognized by a large number of manufacturers and users.148 In
genetic diagnostics, a standard should not necessarily be looked at in
terms of a technical specification, but could present itself as a set of
mutations, recognized by the international scientific community, or
reflecting national or international best practice guidelines for genetic
testing for a particular disease.149 Good examples are the standards
and guidelines issued by the American College of Medical Genetics
for Cystic Fibrosis.150 Whereas such best practice guidelines may serve
as an important incentive for the establishment of patent pools in con-
sumer electronics and telecommunications,151 in a royalty collection

148
╇ European Commission, Communication of 27 October 1992 on Intellectual Property
Rights and Standardisation, COM(92) 445 final. See also: Verbruggen, J., and
Lôrinz,€A., ‘Patents and Technical Standards’, 33 International Review of Intellectual
Property and Competition Law, 2002, 125–54, at 132 and Mueller, J.M., ‘Patenting
Industry Standards’, 34 Int’ll Prop. L. Rev., 2002, 201–50, at 209.
149
╇ Van Overwalle et al., ‘Models facilitating access’, at 145; Verbeure, B., van Zimmeren,
E., Matthijs, G., Van Overwalle, G., ‘Patent Pools and diagnostic testing’, 24
Trends in Biotechnology, 2006, 115–20, at 118 and Ebersole, T.J., Guthrie,€ M.C.,
Goldstein, J.A., ‘Patent pools and standard setting in diagnostic genetics’, 23 Nature
Biotechnology, 2005, 937–938.
150
╇ Richards, C.S., Bradley, L.A., Amos, J., Allitto, B., Grody, W.W., Maddalena, A.
et al., ‘Standards and Guidelines for CFTR Mutation Testing’, 4 Genetic Medicine,
2002, 379–91.
151
╇ OECD, ‘Genetic Inventions’; Van Overwalle et al., ‘Models for facilitating access’, at
143–8; Verbeure et al., ‘Patent pools’, at 115–20 and Ebersole et al., ‘Patent pools’,
at 937–8.
 Clearinghouse mechanisms: conceptual framework 107

clearinghouse for genetic diagnostics, those guidelines could be trans-

formed into an administering tool for the identification and grouping of
the patent rights into one licence to increase the clearinghouse’s trans-
parency and effectiveness. All the patented products and technologies
which – according to the guidelines – are essential for genetic testing
for a particular disease, could be made available as a ‘set’ on the basis
of a standard licence with a non-stacked, fair, reasonable and non-
�discriminatory royalty rate.152
Next to offering sets of patented inventions, the royalty collection
clearinghouse should also allow to shop around and pick and choose
only those inventions a specific scientist, clinical geneticist, laboratory
or clinic needs to carry out or develop upon the diagnostic tests con-
cerned. If the pick-and-choose option would be excluded and only pack-
ages of pre-specified licences would be available, this might amount to
tying and have anti-competitive effects.
As the best practice guidelines for genetics are subject to regu-
lar review following new developments in this discipline, the sets of
patented inventions and the related standard licences should thus be
dynamic as well.

Access, use, reporting, royalty collection and disbursement

The clearinghouse database provides information on inventions, the
related patents and the respective claims relevant for a specific applica-
tion in genetic diagnostics (cf. information clearinghouse). The patent
owner(s) and licensee are ‘matched’, either with or without interven-
tion of a patent expert (cf. technology exchange clearinghouse). The
licensee ticks boxes according to his needs, on the basis of which a
standard licence will be generated and the appropriate royalty will be
calculated. Depending on the specific parameters (nature of the user,
intended use, geographical scope of application, relevant inventions
etc.) a particular standard licence will be offered. By paying the roy-
alty fees, the licensee acquires the right to exploit the selected patents/
patent claims. Only in exceptional circumstances would it be oppor-
tune to allow licensees to request complementary negotiations on add-
itional clauses or requirements. Otherwise, the transaction costs sav-
ings will be wiped out.
To facilitate the monitoring and enforcement of the licence agree-
ments, a reporting system would be set up. Unlike a system adminis-
tered by blanket licences, the standard licences stipulate that licensees

╇ Cf. Graff et al., ‘Towards an Intellectual Property Clearinghouse’, at 9–10.

152
108 Esther van Zimmeren

should report their use of the patented invention to the auditing depart-
ment of the clearinghouse without having to submit confidential infor-
mation to the patent owners. Currently, users in genetic diagnostics
appear to be quite reluctant to provide details on their testing activities
both vis-à-vis patent owners and the general public. Partially, this can
be explained by the fact that at present, so-called ‘home-brew’ methods
infringe patents. Moreover, restitutions by public insurance schemes
require complex calculations that involve some creative book-keeping,
or track records are simply incomplete. If the figures would only have
to be submitted to an independent auditor within the licensing and
collection clearinghouse for the sole reason of calculating the appropri-
ate royalties (with a guarantee of confidentiality), users might be more
willing to cooperate.
An electronic royalty collection and disbursement accounting sys-
tem is indispensable in the framework of a PRCCH. The clearinghouse
would collect the royalties from the licensees on a yearly or half-yearly
basis and compensate the patent holders, either pursuant to a set allo-
cation formula or based on the figures reported by the licensees after
deduction of the administration costs. Depending on the actual num-
ber of patent holders and licensees, the administrative burden of both
the collection and the reallocation of the royalties may be substantial.
However, appropriate software tools and decentralized settlement of
these duties of the clearinghouse will deduce this Herculean task to
manageable proportions.

Monitoring and enforcement

In case the clearinghouse auditor notices some irregularities in the
reports, he would be allowed access to the licensee’s records. Monitoring,
notification and enforcement against infringement by non-licensees
will, however, be more complicated to carry out. The patent holder will
generally be best-placed to ascertain such facts. Nevertheless, it could
be one of the basic services provided by the clearinghouse, or it might
be optional and patent holders interested in such services would pay
complimentary fees to the clearinghouse.
It would also be convenient to accommodate an in-house dispute
resolution mechanism. Many disputes might be tackled before adver-
saries end up before court. Especially because in genetic diagnostics,
the same companies and institutions are dealing with one another in
different projects subject to a continuous metamorphosis (at one time
as an IP holder, at another occasion – or even in the same transaction
in case of a cross-licence – as a user of the IP); the maintenance of
 Clearinghouse mechanisms: conceptual framework 109

sound, long-lasting business relationships is of vital importance. As the

clearinghouse employs experts in the area of patents and licensing and
in practice has ample contacts with external experts as well, mediation
and arbitration services can be offered in-house.

5.5 Pitfalls of the PRCCH in genetic diagnostics

Royalty collection clearinghouses offer an interesting opportunity for
remedying the practical impediments relative to the emergence of patent
thickets. Clearinghouses could function as a platform for information,
partnering, standardized licensing, royalty collection and �distribution,
monitoring and enforcement. As independent intermediaries, they are
beneficial for right owners, users and patients by lowering transaction
costs, preventing the stacking of royalties and safeguarding access to
the patented technology. The second problem identified above regard-
ing the non-cooperative patent holder will be more difficult to overcome
through the voluntary mechanisms of a PRCCH. However, this prob-
lem might be remedied by tools complementary to the clearinghouse
instead of the use of drastic measures such as compulsory licensing.
Examples of such tools might be reciprocal positive comity or grant-
back clauses, which should be tested on their conformity with compe-
tition law.
A PRCCH will clearly have some disadvantages as well. First, the
analysis of the copyright collection societies has shown that attention
should be paid to any anti-competitive effects caused by the licences
offered by the clearinghouse, and to the risk of the clearinghouse abus-
ing its strong market position. This risk is relieved in case several com-
peting royalty collection clearinghouses would exist. Also the voluntary
nature of the clearinghouse, fair, non-exclusive and non-discriminatory
licences, the auditing role of independent experts and external supervi-
sion may act as safeguards to prevent abuse.
Second, copyright holders initially had a clear interest in collective
management, as it was almost impossible for them to monitor and track
every single copyright infringement. This incentive for setting up a roy-
alty collection clearinghouse might be absent amongst a major part of
the right owners in genetic diagnostics where – contrary to the situation
in copyright – the number of users is not nearly infinite, but limited to
the public and private entities involved in carrying out research and
testing and pursuing the further development of products. Patent hold-
ers with their own IP and licensing departments may not be particularly
interested in participating in a royalty collection clearinghouse, as they
dispose of monitoring tools in house. Small and medium enterprises
110 Esther van Zimmeren

without the means to set up such a division will gain more from the
services of a clearinghouse. This bears the risk that only small players
will join the clearinghouse which, in turn, will represent an asymmetric
patent portfolio.
Moreover, as long as the clearinghouse does not constitute a critical
mass of patented technology, it might not be a viable and effective alter-
native, nor prevent the emergence of an anticommons effect. If major
patent holders would not be willing to participate in a clearinghouse,
the clearinghouse would only be one out of several licensing partners.
Licensees would be obliged to enter into separate negotiations with the
clearinghouse and the patent owners that do not want to collaborate with
the clearinghouse. Hence, the anticommons effect will only partially be
remedied and the transaction costs will not be substantially diminished.
If these concerns would appear realistic, a cost–benefit analysis of the
establishment of the clearinghouse will most probably not result in a
positive evaluation. Heller and Eisenberg already expressed hesitation
as to whether companies in the biomedical sphere would be willing to
cooperate at all in private arrangements in order to reduce transaction
costs of bundling multiple licences. “Because patents matter more to
the pharmaceutical and biotechnology industries than to other indus-
tries, firms in these industries might be less willing to participate in
such [collective rights organizations153] that undermine the gains from
exclusivity”.154 Third, current bilateral licensing practices leave a lot of
leeway for creative solutions.155 The negotiated terms reflect numerous
circumstances, e.g. the nature of the product, the strength of the par-
ties, the strength of the IP, the stage of development of the product and
the number of competitors. Standard licences might hardly be able to
meet those demands. Furthermore, some common business practices,
such as due diligence and networking, highly appreciated in the patent
licensing business might be thwarted. The use of extensive in-house
due diligence procedures is extremely helpful in evaluating the validity,
strength and scope of patents. Building and nurturing long-term busi-
ness relationships based on trust and understanding with major patent
holders is of vital importance especially for small- and medium-sized

153
╇ At this instance Heller and Eisenberg were explicitly considering patent pools, but
their concerns apply to collective rights organizations in general and as such to clear-
inghouses as well.
154
╇ Heller & Eisenberg, ‘Can Patents Deter Innovation?’, at 700.
155
╇ Licensing practices are rather creative with regard to the royalty calculation schemes,
minimum amounts of royalties, field of use, setting milestones, quality standards,
transfer of materials, reporting duties, warranties, infringement procedures by third
parties, improvements regarding the patented inventions, technical assistance, prod-
uct liability, termination of the license agreement, etc.
 Clearinghouse mechanisms: conceptual framework 111

enterprises. In this respect, contacts between research departments,

management and licensing agents are indispensable. The options for
flexibility and ‘business-relationship maintenance’ in the clearinghouse
and its standard licences are inherently restricted. It is, therefore, vital
for the success of the clearinghouse that the standard licences will meet
at least the most common expectations for alternatives for licensing
clauses.
Fourth, also the exchange of complementary know-how is generally
fundamental for the smooth operation and further development of the
patented inventions. Know-how is confidential in nature and generally
protected as a business secret. The clearinghouse may not be able to
guarantee the exchange of know-how to all its non-exclusive licensees
and maintain secrecy. Thus, with respect to complex technologies, di�
rect negotiations between the licensor and the licensee on the know-how
may still be required which might do away with part of the advantages
of the PRCCH. This might be a reason to advocate the establishment of
a royalty collection clearinghouse limited to patented DNA sequences
and mutations, and a handful of commonly used diagnostic tools. Such
inventions, indeed, do not normally necessitate the exchange of com-
plementary know-how.
Fifth, royalty collection clearinghouses will be more complicated
and costly to set up in comparison to the other clearinghouse mod-
els. The information and technology exchange clearinghouse will only
require a small team of experts who continuously evaluate and manage
the information, and information technology experts for the manage-
ment of the database. A royalty collection clearinghouse will not func-
tion adequately without highly educated scientists, experienced patent
attorneys and lawyers for evaluating the patents, developing standard
licence agreements, matching licensees with the relevant patented
inventions, monitoring, auditing and organizing enforcement and dis-
pute resolution. It is difficult to predict in general to what extent these
costs will outweigh the benefits related to a decrease of transaction
costs and prevention of royalty stacking. Probably, this is to be evalu-
ated on a case-by-case basis and with respect to a particular technol-
ogy and use.

5.6 Concluding remarks

The foregoing analysis explains why at present a patent royalty collec-
tion clearinghouse is probably too big a leap forward.
Case law and literature on copyright collection societies have taught
us that we should not favour ‘collectivization’ as such, but carefully
112 Esther van Zimmeren

examine the justifications and added value on a case-by-case basis.

Historical justifications such as economies of scale for licensing, moni-
toring and enforcement may not be valid. Advantages detected for the
role of intermediaries for rights management do not imply collective
administration by one clearinghouse but may allow several competing
collective mechanisms. Collective administration in copyright does not
inevitably show an urgent need and effective role for collectives in the
patent sphere. In some areas, the establishment of a PRCCH may be
appropriate, in other cases bilateral licences, cross-licences or patent
pools may be better, more efficient remedies to safeguard freedom to
operate.
Just as for copyright collective administration, collective administra-
tion of patent rights is not ‘the magic bullet that bridges the unfortunate
trade off between incentive and access’.156 This is even more so in view
of the complexity and importance of patents and the characteristics
of the biotech industry. Moreover, pharmaceutical and biotechnology
companies rely heavily on their patent portfolio and exclusive licences
and favour a rather protective approach. However, a successful and
fair operation of a patent royalty collection clearinghouse presupposes
a willingness to employ non-exclusive licences or exclusive licences
for only limited fields of use and a certain release of control once the
pa�tented technology is licensed to the clearinghouse. This might not be
so obvious in the biotech sector.
Is there a future for broad application of the patent royalty collec-
tion clearinghouses in genetic diagnostics? At present, the concept has
to mature and be subjected to more thorough review and debate with
the stakeholders. In order to seriously engage in the ideas for a royalty
collection clearinghouse for patents in genetic diagnostics, the work on
copyright collection societies, including the judgments and decisions
on competition law, and the present debate within the European Union
on the cross-border collective management of copyright and related
rights for online music services, should be followed up closely. In par-
ticular, economists should be invited to analyse to what extent royalty
collection, monitoring and enforcement by a clearinghouse for patented
genetic inventions might be more efficient than bilateral licences or
other remedies that have been proposed. This will hopefully provide
the necessary guidance in this highly challenging and extremely com-
plicated area.
For now, it may be more realistic to promote a global technology
exchange clearinghouse and/or standard licences clearinghouse as an

╇ Katz, ‘Copyright Collectives’, at 1.

156
 Clearinghouse mechanisms: conceptual framework 113

intermediary solution for genetic diagnostics. These types of clearing-

houses are not a new phenomenon in the patent field; they will raise
awareness, remedy some of the problems, and will meet with less oppos-
ition. Ultimately, if it would be demonstrated that a more advanced
mechanism is desirable, those technology exchange and standard
licences clearinghouses could be expanded by offering a wider spec-
trum of services and gradually develop into a patent royalty collection
clearinghouse over time.

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t r e at i es

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c a se l aw

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 Clearinghouse mechanisms: conceptual framework 119

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6 Case 3. The Global Biodiversity Information
Facility (gbif)
An example of an information clearinghouse

James L. Edwards

6.1 Introduction
The Global Biodiversity Information Facility (GBIF) is an example
of an information clearinghouse that focuses on biological diversity, pri-
marily at the species and specimen levels. Although GBIF does con-
tain some genetic information (especially about cultivars or varieties
archived in living stock centres), it does not provide access to any patent
data and all the information it provides is freely and openly available to
all users. Therefore, GBIF does not provide a very apt model for gene
patents. However, GBIF does provide some interesting lessons for how
to assemble a distributed network of information.

6.2 Background
GBIF1 is an international organisation designed to make the world’s
biodiversity data freely and universally available via the Internet, for the
benefit of science, society and a sustainable future. It was established in
2001 as a result of deliberations and discussions in the OECD’s Global
Science Forum.2
However, GBIF is a free-standing organisation, not directly linked to
the OECD or United Nations. It is based upon a unique Memorandum
of Understanding, but has no formal standing in international law.
Inspirational models for the formation of GBIF included the
International nucleotide sequence databases (GenBank, EMBL and
DDBJ);3 Mexico’s CONABIO (Comisión nacional para el conocimiento
y uso de la biodiversidad);4 Costa Rica’s INBio (Instituto Nacional
de Biodiversidad);5 and Australia’s ERIN (Environmental Resources

1
╇ www.gbif.org/. 2╇ See www.gbif.org/GBIF_org/facility/OECD_Endorsement.
3
╇ www.insdc.org/page.php?page=home. 4
╇ www.conabio.gob.mx/.
5
╇ www.inbio.ac.cr/en/default.html.

120
 Case 3. GBIF 121

Information Network).6 GBIF was able to build upon these pioneering

national activities to develop its international approach.
The Convention on Biological Diversity7 defines biodiversity as ‘the
variability among living organisms from all sources including, inter
alia, terrestrial, marine and other aquatic ecosystems and the ecologi-
cal complexes of which they are part; this includes diversity within spe-
cies, between species and of ecosystems’. GBIF focuses on what it calls
‘primary scientific biodiversity data’, or species-occurrence data, which
it defines as information about where, in time and space, plants, ani-
mals and microorganisms have been found. This kind of information is
valuable for policymakers (land-use planning, management of invasive
species, control of disease vectors) and scientists, and is also of great
interest to the general public.
The data served by GBIF come from three kinds of sources: (1) speci-
mens that are now held in natural history museums, herbaria, botanical
gardens and living organism stock centres, (2) observations of organ-
isms where no specimens are collected (e.g. bird banding projects, biob-
litzes), and (3) information on the current and past scientific names
of species (these name data largely come from the Catalogue of Life
partnership)8. These data have been amassed over the last 300 years,
allowing users to follow the changes in where species are found over
much of this time period.9
The primary biodiversity data served by GBIF come from a world-
wide network of data providers.10 The data themselves remain with
the data providers; GBIF indexes the information and allows users to
search all it at once, instead of having to go individually to each data
provider’s site. GBIF is thus what Reichman and Uhlir call a federated
data repository.11
But GBIF is much more than just a data repository. It also engages in
a wide range of education activities about biodiversity informatics; pro�
vides funding to help data owners to digitise their information and serve
it to the world; and plays an increasingly important role in developing
data protocols and standards for sharing, exposing and searching data.
In addition, it has commissioned several well-cited reports on a diverse

6
╇ www.environment.gov.au/erin/about.html. 7╇ www.cbd.int/.
8
╇ See www.catalogueoflife.org/info_about_col.php.
9
╇ A tutorial on using the information in the GBIF data portal is available at www.gbif.
org/Stories/STORY1183131151/documents/english.
10
╇ As of mid-August 2007, GBIF was serving 134 million data records made available
by more than 200 data providers.
11
╇ Reichman J, Uhlir P, 2003, ‘A contractually reconstructed research commons for
scientific data in a highly protectionist intellectual property environment’, Law and
Contemporary Problems, Winter-Spring, 315–462.
122 James L. Edwards

range of topics including the uses of primary species-occurrence data

and principles and methods of data cleaning. All these activities are
undertaken in collaboration with GBIF’s membership, consisting of
forty-seven countries and forty international organisations12 and with
non-member partners and user groups.
Most of the data being served by GBIF were derived from public
funding, and GBIF complies with the OECD Principles and Guidelines
for Access to Research Data from Public Funding.13 In an analysis of the
application of these principles, Arzberger et al.14 cite GBIF as a model
for implementing these principles.
GBIF’s intellectual property (IP) principles are simple:
• Open access to data.
• All IP stays with the data providers; GBIF itself asserts no rights to
the data it serves.
• Data providers can restrict access to sensitive information, such as
geographic coordinates of endangered species.
• Users must sign an agreement that they will adhere to any use restric-
tions required by the data providers and that they will acknowledge
the sources of any data they use from the GBIF network.

6.3 Why does GBIF work as an information

clearinghouse?
A confluence of interests and information technologies has allowed
GBIF to become a successful information clearinghouse.
First, there is political and scientific interest in freely sharing biodiver-
sity data. The establishment of the Convention on Biological Diversity
in 1992 gave a strong political incentive to countries to understand and
manage the biodiversity within their borders. At the same time, the sci-
entific community began to recognise that researchers gained more by
sharing their information than by locking it up.
Second, primary biodiversity data are in themselves of relatively lit-
tle commercial value. Some exceptions do exist, such as in preparing
environmental impact studies. Ultimately, however, it is the biological
molecules and the genes found within the organisms that hold the most
commercial value, not the species-occurrence data per se.

╇ The most up to date list of members is at www.gbif.org/GBIF_org/participation.

12

╇ Available at www.oecd.org/dataoecd/9/61/38500813.pdf.

13

╇ Arzberger PW, Schroeder P, Beaulieu A, Bowker GC, Casey K, Laaksonen L,

14

Moorman D, Uhlir P, Wouters P., 2004, ‘Promoting Access to Public Research Data
for Scientific, Economic, and Social Development’, Data Science Journal 3, 135–52.
 Case 3. GBIF 123

Third, developed countries have begun to recognise the need to help

erase the digital content divide. Although the greatest diversity of spe-
cies lies in the tropical, developing world, most of the information about
those species lies in the natural history collections and literature of the
developed world.
Fourth, at the beginning of the twenty-first century information
technology had matured to the point where it was relatively easy to link
together distributed databases into a federated network without requir-
ing that all of them use the same underlying data architecture. In add�
ition, the rapid expansion and increase in speed of the Internet made
it feasible to access those databases in real time. And the invention of
the open-source software movement made it easy for people around the
world to contribute to the common software pool and to build value-
added components.
Finally, GBIF’s independence from other international bodies has
meant that it has escaped much of the political wrangling so common in
the international sphere. For an organisation that is just a few years old,
it has moved quite quickly in developing and implementing its inter-
national work programme.

6.4 Is the GBIF model applicable to gene patents?

The innovative aspects of GBIF that could be appealing in the gene
patent arena are (1) its international character, (2) its provision of free
information to all users, and (3) its basis in a flexible Memorandum of
Understanding among its participants.
Although the GBIF approach of providing free and open access
works well with primary scientific biodiversity data, it may not be as
applicable for gene patents for the following reasons.
First, GBIF does not provide any brokerage services. It does allow
users to directly contact data providers if they wish further information
than what is served through the GBIF data portal, but otherwise it does
not explicitly try to link users and providers.
Second, GBIF has no mechanism, other than the moral suasion
common to scientific endeavours, to enforce its data-use and data-
provider agreements. To date, this has proved sufficient, as there are
no known cases of abuse. But such amity may not prevail in the gen-
etic arena.
Third, GBIF’s Memorandum of Understanding is not legally bind-
ing. This has provided great flexibility in developing and implementing
its activities, but might not be sufficient in the highly charged area of
gene patents.
124 James L. Edwards

6.5 Conclusions
The Global Biodiversity Information Facility is a relatively successful
information clearinghouse. A major part of its success is the ‘primary’,
scientific nature of the data that it serves. Still, it may offer some inter-
esting ideas for a clearinghouse for human gene patents.

R eferences
Arzberger PW, Schroeder P, Beaulieu A, Bowker GC, Casey K, Laaksonen€L,
Moorman D, Uhlir P and Wouters P, ‘Promoting Access to Public
Research Data for Scientific, Economic, and Social Development’,
Data€Science Journal 3, 2004, 135–52
Reichman J, and Uhlir P, ‘A contractually reconstructed research commons
for scientific data in a highly protectionist intellectual property
environment’, Law and Contemporary Problems, Winter-Spring, 2003,
315–462
7 Case 4. BirchBob
An example of a technology exchange
clearinghouse*

Esther van Zimmeren and Dirk Avau

7.1 Introduction
BirchBob is a private company offering services to both technology
holders (patent owners) and technology users in order to allow them to
perform better in the global technology marketplace. These services are
not limited to any particular technology sector or discipline. BirchBob
assists universities, research institutes and industry and has clients with
different profiles, varying from laboratories to manufacturers.
The BirchBob platform was launched in 1999 in the US. The name
‘BirchBob’ is a tribute to Senators Birch Bayh of Indiana and Robert
Dole of Kansas, who co-sponsored the so-called Bayh-Dole Act.1
Enacted on 12 December 1980, the Bayh-Dole Act created a uniform
patent policy among the many federal US agencies that fund research
by enabling small businesses and non-profit organizations, including
universities, to retain title to inventions made under federally funded
research programs, and encouraging universities to collaborate, to
file patents on inventions and to promote the commercial use of those
inventions through technology transfer activities.
Since its inception in 1999 BirchBob has been cooperating with key
US universities such as the University of Harvard, John Hopkins and the
University of California and from 2003 onwards BirchBob has gradually
been expanding its network of technology providers to five continents.
BirchBob’s business model involves various services which ultiÂ�
mately facilitate access to patented technology and in some cases also
the use of the technology by setting the scene for licensing negotiations.
*
╇����������������������������������������������������������������������������������� This paper is based on Dirk Avau’s presentation on the two-day international work-
shop organized by the Centre for Intellectual Property Rights of the K.U.Leuven on
‘Gene Patents and Clearing Models. From Concepts to Cases’ on 8 and 9 June 2006,
and on BirchBob’s website www.birchbob.com/.
1
╇ US, enacted December 12 1980 (P.L. 96–517, Patent and Trademark Act Amendments
of 1980), codified in 35 U.S.C. §200–212, and implemented by 37 C.F.R. 401.

125
126 Esther van Zimmeren and Dirk Avau

In doing so, BirchBob could be classified as a “technology exchange

clearinghouse”.
In the following Section 7.2, BirchBob’s business model will be
described and attention will be paid to its major objectives, its geo-
graphical coverage, the services provided and the search tool employed.
Section 7.3 will then analyze to what extent BirchBob fits into the cat-
egorization put forward by van Zimmeren in her conceptual frame-
work, and what the pros and cons are of this kind of business model.
The final Section 7.4 contains some concluding remarks.

7.2 BirchBob business model

Objectives of BirchBob
The major objective of BirchBob is to centralize offers for licensing
and sale of technologies, and research and development (R&D) collab-
orative projects from academia, government and industry around the
globe, by way of a single Internet search. As a follow-up to the Internet
search, BirchBob can be contacted and can be requested to put its net-
working experience at work, acting as an international gateway for tech-
nology exchange and providing assistance to companies, universities
and research institutes in identifying the technology and technology
partners they need to safeguard future growth.

Geographical coverage
With representations in Europe, Asia, and in the United States, the
BirchBob network covers fifty-two countries on five continents.
On-going efforts are made to consolidate the network, and to further
extend it to new organizations in other countries and regions which are
expected to soon generate greater interest from the technology market-
place, such as Ukraine.

BirchBob services
The services provided by BirchBob can roughly be distinguished in
services related to licensing and sale of technology, R&D collaborations
and a patent option market.

Licensing and sale of technology

BirchBob assists organizations in promoting their own technologies,
on the one hand, and, identifying technologies which are available in
 Case 4. BirchBob 127

the market and relevant to their business, on the other hand. For this
purpose, it has developed a licensing repository and a search tool for
screening technologies available for licensing within the repository. In
the repository one finds technologies from a rich variety of sectors and
disciplines. The repository provides information on particular technolo-
gies, their availability for licensing or R&D collaboration, the organiza-
tion holding the technology, the field of expertise, a brief description of
the technology, the field of use and a reference to a web address where
you can find the full description of the technology.
In order to facilitate the operation of the repository, BirchBob created
a cross-industry Extensible Markup Language (XML) standard.2 This
XML standard relates to the core of the BirchBob activities, which is
mining sites that have been XML-tagged. As the BirchBob system is
dependent on XML tagged forms, websites to be screened by the search
tool need to be XML tagged. Most corporations have been using XML
tagging, but for small non-commercially oriented government/univer-
sity research labs XML tagging has not been general practice thus far.
Therefore, it has been essential for the development and effectiveness of
BirchBob’s search engine that US technology transfer professionals par-
ticipated in this project. In 2003, BirchBob, along with government and
academic technology transfer professionals, developed an XML-tagging
standard that joins technology transfer offices from academia, govern-
ment and industry to create a one-stop search engine for technologies
available for licensing. The creation of the BirchBob Open XML stan�
dard included input from the National Institutes of Health (NIH), the
National Technology Transfer Center (NTTC), the National Aeronautics
and Space Administration (NASA), the Federal Laboratory Consortium
for Transfer of Technology (FLC), the US Department of Energy (DOE),
the University of California, the University of Rochester and Harvard
University. BirchBob also made use of many personal contributions
from people attending the Special Interest Group at the Association of
University Technology Managers (AUTM) Annual meeting in Orlando
and the comments received through the BirchBob web site. The standard
represents XML tags that are placed on webpages describing an organiza-
tion’s technologies. The BirchBob search engine uses its XML standard
in combination with keywords and concept-relations searching methods.

2
╇ XML is a general-purpose specification for creating custom markup languages. It
is classified as an extensible language because it allows its users to define their own
elements. Its primary purpose is to facilitate the sharing of structured data across dif-
ferent information systems, particularly via the Internet, and it is used both to encode
documents and to serialize data and designed to be relatively human-legible. For more
information, see: www.w3.org/TR/xml/.
128 Esther van Zimmeren and Dirk Avau

BirchBob also uses the free placement of its search box on third par-
ties’ websites – acting as relays – to ensure wide national and inter-
national access.
Technology holders can report their technology to BirchBob by send-
ing the web address where the licensable technology is described or by
providing BirchBob access to a database. The advantages of this system
for technology holders are that it is free, that it is open to input from all
kinds of organizations and partners and that the technology will be avail-
able on a worldwide level. BirchBob will offer to add XML tags, or post
the technology in the repository by way of the web address. If necessary,
BirchBob can provide some additional services in this part of the process,
such as developing a commercially attractive description for publication
on the Internet, web hosting services or help in XML tagging.3
For the technology seeker/user, BirchBob can offer several services
complementary to the repository. Basic searches are free, but more
advanced search features require taking a subscription (e.g. “gold
plan”, “corporate plan”). Such a subscription will bring more flexibility
in the searching process with features such as sorting results, custom-
izing lists, creating filters, indexing categories and exporting lists into
the client’s databases. Through its corporate plan BirchBob can also
assist by evaluating the most pertinent options for buying or licensing
technology and know-how within a particular budget. In this evalu-
ation lifetime costs, intellectual property (IP), scientific value, finan-
cing methods and implementation will be taken into consideration.
When the licensing opportunities are identified via the repository
one may request additional information on a particular technology with
the service called “handshake”. The information provided will concern
the technology itself, the IP and a profile of the organization, including
its track record in technology transfer, and the transfer of technology
opportunities. In this framework a non-disclosure agreement will be
signed, which will enable parties to exchange confidential information.
If the technology which the technology seeker is missing is not avail-
able through the repository, BirchBob will use its worldwide network of
technology holders to identify potential sources and terms. Moreover,
it could build a proprietary database of relevant technologies for the
technology seeker, searching and benchmarking capacities. Ultimately,
BirchBob can try to match technology holders with the technology seek-
ers, and if the parties wish so, assist in negotiating technology transfer
agreements.

╇ Avau, D., ‘Creatieve kenniseconomie: België in de spits van wereldwijde technologie
3

marketing met BirchBob, Incrowd May, 2005, 13, at 13.

 Case 4. BirchBob 129

R&D collaborations
BirchBob also helps organizations in setting up early stage collabo�
rations. A valorization strategy produces better results when partner-
ships with business are made early, while research is still on-going,
rather than when research is far advanced, or when research is com-
pleted and patent applications are already filed.
The resulting collaborations may be scientific, financial and/or com-
mercial. The objective is to involve potential licensees already in the
research process, enabling the parties to set common goals, assessing
together the relevance of potential patent filings and persuading licen-
sees to bear the filing costs. In many cases, the partnerships trans-
late into production and commercial agreements. This way, research
organizations will not need to search for licensees once they hold patent
applications/patents and they do not have to put their limited resources
into patent filings. Many of these collaborations generate long-term
commitments with perspectives such as further research, production
and distribution.

Patent option market

Another instrument provided by BirchBob in an aim to transfer tech-
nology early in the innovation process is the patent option market. The
patent option market enables technology users to take out an option for
buying or licensing a patent. This patent option market focuses on early
stage inventions. This has the advantage that both parties will have
some time to decide on the final deal. The price of the option will often
cover the investment for obtaining international patent protection.
All transactions are listed at conditions pre-approved by the tech-
nology holders. Final closings of the transaction may, however, take
place on conditions resulting from negotiations between the parties.
BirchBob works closely together with the inventors. The fee that will be
collected through the option will contribute to ensure maximum cover-
age of the corresponding inventions (in some cases this will for instance
mean extending a national patent application into a PCT application).

7.3 BirchBob a ‘technology exchange clearinghouse’?

BirchBob is a private company offering services that fit well into the
technology exchange clearinghouse model.4 A technology exchange
clearinghouse has been described as a platform designed to “offer

4
╇ van Zimmeren, E., ‘Clearinghouse mechanisms in genetic diagnostics. Conceptual
framework’, see Chapter 5 of this volume.
130 Esther van Zimmeren and Dirk Avau

information services listing the available inventions related to a specific

technology. On the basis of this information technology users will then
initiate negotiations with the patent holder for a license. Some clearing-
houses allow licensees to opt for additional partnering, mediating and
managing services.”5 BirchBob indeed supplies basic information ser-
vices and additional partnering, consultancy (economics and informat-
ics), managing, and negotiation services.
A key element of the technology exchange clearinghouse is that
legitim�ate access to the patented inventions is not granted by the tech-
nology exchange clearinghouse, but by the individual technology
holder after one-to-one licensing negotiations have taken place with
the potential licensee (technology user). These negotiations are, never-
theless, based on the information provided by the clearinghouse. The
technology exchange clearinghouse provides access to the technical
information and contact information on the technology holder/licensor
involved, but does not provide a one-stop licensing access in terms of
open access, standard licenses or customized licenses.
Through its licensing repository BirchBob provides information on
the licensable technology or opportunities for R&D collaboration. To
identify the relevant technology holders, some basic information is given
on the technology and the organization, but more detailed information
can be obtained through the handshake service. As BirchBob is closely
following the market developments it can also give more exclusive infor-
mation on technology holders, such as track records on technology
transfer, customized according to the profile and needs of the tech-
nology seeker. This will enable clients to better evaluate the chances of
success and the opportunities for long-term collaboration. The technol-
ogy holder and technology user will be matched and brought together
in order for the negotiations to take place. If the partners consider it
necessary, these negotiations can take place on the basis of confidenti-
ality agreement processed by BirchBob. BirchBob could also assist in
the negotiation process itself.
Making use of BirchBob’s services has some pros and cons. By way of
the search engine BirchBob creates more transparency in the market.

╇ Ibid. See also: van Zimmeren, E., Verbeure, B., Matthijs, G., Van Overwalle, G.,
5

‘A Clearinghouse for Diagnostic Testing: the Solution to Ensure Access to and Use
of Patented Genetic Inventions?’, 84 Bulletin of the World Health Organization, 2006,
352–9, at 353–4; Van Overwalle, G., van Zimmeren, E., Verbeure, B., Matthijs, G.,
‘Models for Facilitating Access to Patents on Genetic Inventions’, 7 Nature Reviews
Genetics, 2006, 143–8, at 145; Krattiger, A.F., ‘Financing the Bioindustry and
Facilitating Biotechnology Transfer’, 1 IP Strategy Today 8, 2004, 1–45, at 21–2 and
Graff, G.D., Zilberman, D., ‘Towards an Intellectual Property Clearinghouse for
Ag-Biotechnology. An Issues Paper’, 1 IP Strategy Today 3, 2001, 1–38, at 6–8.
 Case 4. BirchBob 131

If a technology holder decides to report its technology to BirchBob, the

worldwide scope of the system will increase the visibility of the licens-
able technology. When scrolling through the licensing opportu�nities
offered through BirchBob, it appears that most technology providers
are universities and research institutes. Public organizations and small-
and medium-sized companies seem to have a rather large interest in
transferring information on their technology to foster their visibility as
a technology holder by using BirchBob’s free information service. Big
multinationals with their own IP and licensing departments might not
have this “visibility incentive”. However, BirchBob might be attract-
ive to them in order to exploit their sleeping IP. Anyway, big compa�
nies might appreciate technology exchange clearinghouses more from
the in-licensing and buying perspective, rather than for out-licensing
purposes.
In general, technology exchange clearinghouses are said to be cheap
to maintain and to require only relatively low operating costs. On the
other hand, all the services complimentary to the search tool offered by
BirchBob appear to be quite labour-intensive and therefore costly. As it
is difficult to offer those more advanced services from one centralized
office, BirchBob collaborates with a worldwide network of technology
transfer experts.
Furthermore, technology exchange clearinghouses are depend-
ent on the cooperation of technology holders in reporting technology.
Therefore, BirchBob is actively marketing and promoting its services on
a worldwide scale. Still it might be difficult to bring together a critical
mass of technology in order to turn the clearinghouse into an effective
tool. At the time of writing, BirchBob’s licensing repository includes
over 40,000 technology licensing offers, which makes it a suitable tool.
It should, however, be noted that BirchBob is not restricted to the med-
ical sector. Hence, the high number of licensable technologies is no
indicator for the effective access BirchBob is safeguarding with respect
to the health care sector as such. At the same time, the cross-sectoral
approach is advantageous as it allows for cross-selling to other sectors.
BirchBob is becoming quite well known but it is neither the sole actor
in this field, nor the single point of reference. At present, most of the
existing clearinghouses only offer a small (pro)portion of the market and
a low density of patents. For technology seekers, it is therefore advisable
to search also other websites besides BirchBob even though this may
amount to paying several registration fees. For technology holders, it
is advisable to approach several technology exchange clearinghouses to
make information widely available in order to fully exploit the potential
of their technology.
132 Esther van Zimmeren and Dirk Avau

Some have argued that the technology exchange clearinghouse is only

suitable for technologies that can be easily defined and valued.6 At first
sight, the BirchBob repository seems indeed particularly useful for gen-
eral-purpose research methods and for very specific and well-defined
improvements to familiar upstream products or processes. However,
well-trained, specialized, experienced and pro-active staff with a good
scientific background may create more opportunities for more compli-
cated technologies in performing customized analyses under the head-
ing of the BirchBob “corporate plan”.
As to whether a profit or non-profit organization is preferred for tak-
ing the lead in a technology exchange, it should be underlined that
it is important that some external supervision is carried out in order
to safeguard the quality of the services both when the organization is
driven by profits and when it is not. As to the private or public nature
of the clearinghouse, most probably, the importance of networking and
IP management skills, and the strong focus on the needs of the market
will be better guaranteed by a private than a public entity.
Does the BirchBob construction comply with other, more advanced
types of clearinghouses? The use of standard licenses as in the standard
licenses clearinghouse or customized standard licenses in the patent
royalty collection clearinghouse does not seem to fit BirchBob’s busi-
ness model. First, as for now technology holders and users are still in
charge of their negotiation process and the determination of the licens-
ing conditions and BirchBob is only providing assistance. BirchBob
will in principle not take over the wheel. Second, BirchBob’s commer-
cial interest lies rather in customized on demand services. This does
not mean that in the future, standard licenses may not become a useful
instrument. Especially when the clearinghouse model will become more
common and market players are getting used to outsourcing transfer of
technology services, they might start appreciating standard licenses as
a way to diminish transaction costs while at the same time remaining in
control of the licensing terms.

7.4 Concluding remarks

The emergence of clearinghouses like BirchBob is especially valuable in
the light of the current trend of “Open Innovation”.7 The central idea

6
╇ Krattiger, ‘Financing the Bioindustry’, at 22 and Graff et al., ‘Towards an Intellectual
Property Clearinghouse’, at 6–7.
7
╇ See in particular: Chesbrough, H.W., Open Innovation: the New Imperative for Creating
and Profiting from Technology, Boston, MA: Harvard Business School Press, 2005.
 Case 4. BirchBob 133

behind open innovation is that in a world of widely distributed know-

ledge, organizations cannot afford to rely entirely on their own research,
but should instead buy or license IP from other companies, research
institutes or universities, or closely collaborate with such organizations
in common research projects. In addition, internal inventions not being
used should be taken outside the organization (e.g. through licensing,
spin-offs and joint ventures). Technology exchange clearinghouses may
facilitate quick advancement of open innovation.
BirchBob offers a wide variety of services to clients (technology hold-
ers and users) as long as they are prepared to pay for those services. If
a client would be interested in granting standard licenses to technology
users without thorough negotiations on the licensing conditions with
each individual user, BirchBob could offer standard licenses to technol-
ogy users in addition to the existing services. This shows that BirchBob’s
business model is dynamic. Reality does often not coincide with aca-
demically defined models, but, when translating BirchBob’s future
opportunities in terms of the clearinghouse categorization applied by
van Zimmeren,8 it is not excluded that BirchBob might develop towards
a standard licenses clearinghouse or even a patent royalty collection
clearinghouse. BirchBob could develop the necessary interface in line
with the features described for those types of clearinghouses. However,
this will be a step-by-step process and it remains to be seen to what
extent clients are actually interested in such services being provided by
a clearinghouse instead of being in control themselves of the negoti-
ations and design of the license, collection of royalties and monitoring
and enforcement.

R eferences
l i t er at u r e

Avau, D., ‘Creatieve kenniseconomie: België in de spits van wereldwijde

technologie marketing met BirchBob, Incrowd, May, 2005, 13
Chesbrough, H.â•›W., ‘Open Innovation: The New Imperative for Creating and
Profiting from Technology, Boston, MA: Harvard Business School Press,
2005
Graff, G.â•›D. and Zilberman, D., ‘Towards an Intellectual Property
Clearinghouse for Ag-Biotechnology. An Issues Paper’, 1 IP Strategy
Today 3, 2001, 1–38
Krattiger, A.â•›F., ‘Financing the Bioindustry and Facilitating Biotechnology
Transfer’, 1 IP Strategy Today 8, 2004, 1–45

8
╇ Van Zimmeren, see Chapter 5 of this volume.
134 Esther van Zimmeren and Dirk Avau

Van Overwalle, G., van Zimmeren, E., Verbeure, B. and Matthijs, G.,
‘Models for Facilitating Access to Patents on Genetic Inventions’, 7
Nature Reviews Genetics, 2006, 143–8
van Zimmeren, E., Verbeure, B., Matthijs, G. and Van Overwalle, G.,
‘A€Clearinghouse for Diagnostic Testing: the Solution to Ensure Access
to and Use of Patented Genetic Inventions?’, 84 Bulletin of the World
Health Organization, 2006, 352–9
â•… ‘Clearinghouse Mechanisms in Genetic Diagnostics: Conceptual
Framework’, see Chapter 5 of this volume

l egisl at ion

Patent and Trademark Act Amendments of 1980, enacted December 12 1980

(P.L. 96–517), codified in 35 U.S.C. §200–212, and implemented by 37
C.F.R. 401
8 Case 5. The Public Intellectual Property
Resource for Agriculture (PIPRA)
A standard license public sector clearinghouse for
�agricultural€IP

Alan B. Bennett and Sara Boettiger

8.1 Introduction
Agricultural research has historically been publicly funded and deliv-
ered as a public good directly to farmers through seeds which incorpor-
ate advanced genetics or through the demonstration of improved agri-
cultural practices. However, over the last twenty years, the results of
agricultural research have increasingly been treated as private goods
and protected through various forms of IP belonging to the primary
innovator. IP protection has provided incentives to develop new crops
that may otherwise not have been developed and, in particular, to invest
in the increasingly expensive regulatory processes for approvals of gen-
etically engineered crops. In contrast to many technology sectors, public
and non-profit institutions have played a very large role in new techno-
logical innovations in agriculture, accounting for nearly one quarter
of new patented innovations in this sector. However, this technology
“portfolio” is fragmented across a large number of institutions and has
not been strategically managed to enable the advancement of a number
of projects. The Public Intellectual Property Resource for Agriculture
(PIPRA) is a clearinghouse institution that is designed to integrate this
fragmented IP portfolio through collaborative management. PIPRA’s
goal is to mobilize technologies from a wide range of public/non-profit
technology providers to address specific projects for the improvement
of subsistence and specialty crops that are not being addressed by com-
mercial seed and agricultural biotechnology companies. PIPRA and its
members believe this landscape of IP can be more effectively managed
collaboratively and by using a set of shared principles. PIPRA’s primary
strategies to improve access to patented technologies are to: 1) provide
a one-stop IP information clearinghouse for access to public sector pat-
ented technologies; 2) provide a resource for the analysis of patented
technologies for implementation of specific projects; 3) develop gene

135
136 Alan B. Bennett and Sara Boettiger

transfer and gene-based trait technologies that have maximum legal

“freedom to operate”; 4) manage pools of public sector technologies to
promote availability and reduce transaction costs associated with trans-
fer of rights to patented technologies; and 5) support the development
of IP management best practices and capacity enhancement in develop-
ing countries.

8.2 Background

The patent thicket in agricultural biotechnology

Public and non-profit institutions have a long history of developing new
agricultural technologies and delivering those research results to seed
companies, farm equipment manufacturers or directly to farmers as
a public good. Land-grant universities and the affiliated Cooperative
Extension Service in the United States provided an integrated system
of public research and delivery of innovations to the agricultural sec-
tor. Similar institutions and activities also supported the development
of so-called green revolution crop cultivars and their delivery to farm-
ers on an international scale. This direct role of public universities
and non-profit research centers in agriculture is strongly embedded
in the culture of these institutions and in agricultural research, more
generally.
So what happened? In the early 1980s in the United States a con-
vergence of events contributed to a changing paradigm for technology
transfer from universities to the agricultural industry. These events
included: 1) scientific developments in the life sciences that prom-
ised to enable powerful innovations in both crop and animal genet-
ics through biotechnology; 2) changes in the legal framework that
allowed universities to own patented inventions resulting from feder-
ally �sponsored research; 1 and 3) a Supreme Court decision allowing
the patenting of living organisms. 2 Simultaneously, there developed a
research-intensive private biotechnology sector that was both techno-
logically and financially equipped to take early-stage inventions from
universities and make the substantial investments in research and
regulatory approval to bring new products to market – but these pri-
vate firms relied on patent protection to justify the large follow-on

1
╇ P.L. 96–517; The Patent and Trademark Act of 1980 and amendments included in
P.L. 98–620; 1984.
2
╇ Diamond v. Chakrabarty, 447 US 303 Docket Number: 79–136; http://caselaw.
lp.findlaw.com/scripts/getcase.pl?court=US&vol=447&invol=303.
 Case 5. PIPRA 137

700
Public Sector Private Sector
600

500

400

300

200

100

1985 1990 1995 2000

Year
Figure 8.1 Patents issued in the US Patent and Trademark Office in
the area of plant biotechnologies between 1985 and 2000 for both
public and private sector organizations (reprinted from Delmer
et€al.,€2003).

investments typically required to develop university innovations. As a

result, beginning in 1980, universities began to seek patent protection
on a wide range of technological innovations, including agricultural
innovations. Figure 8.1 illustrates the trend in patenting in the area of
plant biotechnologies between 1985 and 2000 for both public and pri-
vate sector organizations.
During the 1990s, it became clear that universities and non-profit
agricultural research institutions were constrained in their histor-
ical role of providing many new agricultural innovations – particu-
larly biotechnology-derived innovations – directly to the agricultural
industry or to farmers. This was especially apparent for specialty or
horticultural crops which don’t occupy the large acreage of agronomic
crops but provide high regional economic value. While there are many
contributing factors, access to the suite of proprietary technologies
required to produce a genetically modified crop has been frequently
cited as a barrier to the commercialization of public sector agricultural
138 Alan B. Bennett and Sara Boettiger

research.3 In Europe, a similar picture emerged in 2000, when a Swiss

scientist developed “Golden Rice”, genetically modified rice with ele-
vated pro-vitamin A,4 which triggered an IP audit. The audit revealed
that seventy proprietary technologies had been infringed in the devel-
opment of Golden Rice and illustrated the complex patent thicket that
surrounded biotechnology innovations for crop improvement.5

Role of institutional leadership

As a result of the emerging and complex IP landscape in agricul-
tural biotechnology, a group of university, non-profit research center
and foundation presidents wrote a compelling article for the “Policy
Forum” of Science magazine.6 The article addressed the historical mis-
sion of public/non-profit institutions and lamented how IP and its man-
agement were now impacting their institutions’ own ability to “develop
new crops with the technologies it has itself invented”. The article con-
sidered the structure of IP ownership in the agricultural sector and
recognized that the public and non-profit research sector had invented
nearly 25% of the reported innovations. However, this portfolio of
inventions was highly fragmented across many institutions that did not
necessarily collaborate well, particularly when it came to IP manage-
ment (Figure 8.2).
The conclusion suggested that collaboration to unify this broad port-
folio under a common philosophical framework may be a powerful
approach to reconstruct a “commons” of patented technologies to sup-
port a range of agricultural innovations that were not being addressed
by private firms – particularly projects addressing specialty crops and
humanitarian objectives. The strong and public statement made by
these major institutional leaders was a critical step in advancing the
clearinghouse initiative that became PIPRA.

3
╇ Graff G., Wright B., Bennett A.B., Zilberman D. 2003a. ‘Accessing Intellectual Property
for Biotechnological Development of Horticultural Crops’, 58 Cal. Ag., 122–7.
4
╇ Ye, X.D., Al-Babili S., Kloti, A., Zhang J., Lucca P., Beyer P., Potrykus I. 2000.
‘Engineering Provitamin A (β-carotene) Biosynthetic Pathway Into (Carotenoid-
Free) Rice Endosperm’, 287 Science, 303–5.
5
╇ Kryder DR, Kowalski DP, Krattiger AF (2000) ‘The Intellectual and Technical
Property Components of Pro-Vitamin A Rice (GoldenRiceTM): A Preliminary
Freedom-to-Operate Review’ ISAAA Brief #20. ISAAA, Ithaca, NY.
6
╇ Atkinson RC, Beachy RN, Conway G, Cordova FA, Fox MA, Holbrook KA, Klessig
DF, McCormick RL, McPherson PM, Rawlings HR, Rapson R, Vanderhoef LN,
Wiley JD, Young CE (2003) ‘A Collective Strategy for Managing Public-Sector
Intellectual Property in Agricultural Biotechnology’, 301 Science, 174–5.
 Case 5. PIPRA 139

Massachusetta General Hospital 0.5%

Salk Institute for Biological Studies 0.5%
Wiaconsin Alumni Research Foundatin
(WARF) 0.5% Agriculture and Agri-Food Canada 0.4%
University of Florida 0.5% Rutgera University 0.4%

Washington State University 0.5% Rest of Public Sector 14.6%

North Carllna State University 0.5%

Michigan State University 0.7%

Iowa State University 0.8%

Cornel University 0.9%

USDA 1.2%

University of California 1.7%

Figure 8.2 The breakdown of ownership of patented technologies

assigned to public/non-profit research institutions across multiple
public/non-profit institutions (data from Graff et al., 2003b).

8.3 The Public Intellectual Property Resource for

Agriculture

A strategy of collaborative membership

PIPRA was established in 2004 with financial support from the
Rockefeller Foundation and began to develop specific services and
programs to address the high-level objectives that had been proposed
through extensive consultation. The primary strategy of PIPRA was to
establish a broad membership base that would represent the major agri-
cultural technology developers in the world. Unifying the highly frag-
mented portfolio of agricultural IP under a common set of principles or
within a framework of open and collaborative communication was viewed
to be the most important first step. As a consequence, the barriers to
join PIPRA were kept quite low – membership fundamentally requires
an agreement to populate the PIPRA patent database with institutional
information, to participate in PIPRA meetings and to agree at a high
institutional level to support collaborative efforts that promote broad
technology access. PIPRA’s membership base is currently comprised of
forty-six institutions in thirteen countries, although US institutions are
predominant. The current members account for approximately 50% of
the public/non-profit patented agricultural technologies.
140 Alan B. Bennett and Sara Boettiger

An IP information clearinghouse

A major program and activity within PIPRA is to serve as a clearing-

house for patent information within the agricultural sector and to create
a common source of information on public/non-profit patented tech-
nologies. This has primarily involved the establishment of a searchable
database of PIPRA member’s technologies that can be accessed by both
members’ technology management staff and by the public. The data-
base contains information on patents and patent applications across
seventy-two reporting jurisdictions and contains information on the
licensing status of each technology which provides the basis to evaluate
whether the technology is available for deployment in specific crops or
geographic jurisdictions.
PIPRA recognizes that finding a patent in a database goes only
part way toward accessing the technology. Among other challenges,
know-how may be required, licenses may need to be negotiated, liabil-
ity and stewardship issues may need to be addressed, and related
public domain technologies may be worthy of examination. PIPRA’s
database was designed to provide a direct way to get assistance with
these other critical areas of technology transfer. What sets PIPRA’s
database apart from others is not just the inclusion of licensing infor-
mation, but the fact that PIPRA has collaborative working relation-
ships with the owners of the technologies displayed. Connections to
scientists and technology transfer offices can be facilitated along with
assistance in licensing negotiation, and legal analysis can inform the
decisions.
To add greater value to the information clearinghouse, PIPRA also
developed the capability to evaluate freedom to operate for deploy-
ment of specific technologies. This capability is comprised of in-house
staff with the skills to prepare dossiers characterizing the scientific and
patent landscapes around specified technologies and a pro bono net-
work of patent attorneys who provide detailed patent claims analysis
and FTO opinions. The external legal resource has been a critical add-
ition to expand the scope and impact of PIPRA’s analytical capability
and to provide rigorous evaluations of IP constraints and opportunities
for the implementation of specific projects.

Technology exchange and standard license clearinghouse

PIPRA has also developed laboratories in order to design research tools
and entire projects that are informed by IP and freedom to operate anal�
ysis. PIPRA’s first project has been to develop “Enabling Technologies
 Case 5. PIPRA 141

for Plant Transformation” – involving the acquisition and testing of a

suite of complementary technologies required for transfer of foreign
genes into plant cells. To initiate this project, PIPRA convened a panel
of experts to develop recommended design parameters that met tech-
nical and regulatory criteria as well as meeting legal criteria for access
to the underlying IP. The recommended design parameters were then
used to identify appropriate technologies that were extensively evalu-
ated internally and by PIPRA’s external network of attorneys. The
results of this analysis provided the basis to identify the core propri-
etary and public domain technologies required to meet the technical
objectives – with an emphasis on incorporating the required propri-
etary technologies from PIPRA member institutions. PIPRA has now
combined the identified technologies into sets of research tools for dis-
tribution to the broader research community and has developed a pre-
negotiated license to the pooled set of proprietary technologies that are
incorporated into the research tool vectors. In the future, PIPRA will
be in a good position to link its enabling technology pool with specific
trait technology pools to fully enable project implementation relying
primarily on PIPRA member technologies.

Strengthening capacity for IP management

Finally PIPRA is also leveraging the expertise embodied in its mem-
bership basis to strengthen the capacity for IP management in both
the North and South. In collaboration with the Centre for Intellectual
Property Management in Health Research (MIHR) it has developed
an extensive handbook on best practices in IP management. The
handbook is comprised of over 150 chapters that address issues of
promoting broad technology access from developed country research
institutions as well as providing blueprints for developing the capabil-
ity to both protect and to access new technologies for developing coun-
try institutions.7 This educational resource has now been deployed
in curriculum for building institutional capacity for IP management
in Latin America and Southeast Asia. It is anticipated that this will
provide the basis for research institutions in a number of developing
countries with emergent legal IP frameworks to rapidly develop their
institutional capacity to both protect and access new technologies for
agriculture.

7
╇ Krattiger A. 2007. Intellectual Property Management in Health and Agricultural
Innovation; A Handbook of Best Practices, MIHR-USA.
142 Alan B. Bennett and Sara Boettiger

8.4 Conclusion
The Public Intellectual Property Resource for Agriculture is
�fundamentally an IP clearinghouse that operates on several levels to
effectively support the broad application of agricultural technologies
developed in public-non/profit research institutions. Its primary strat-
egy has been to adopt a highly collaborative program built on consen-
sus views of its members – all of whom fundamentally believe that IP
protection is an important tool to support innovation. PIPRA is work-
ing within the context of its members to support both commercial and
humanitarian applications of technologies and to develop strategies and
mechanisms to stimulate even more innovation globally.

R eferences
Atkinson RC, Beachy RN, Conway G, Cordova FA, Fox MA, Holbrook KA,
Klessig DF, McCormick RL, McPherson PM, Rawlings HR, Rapson R,
Vanderhoef LN, Wiley JD, and Young CE (2003), ‘A Collective Strategy
for Managing Public-Sector Intellectual Property in Agricultural
Biotechnology’, 301 Science, 174–5
Delmer D., Nottenburg C., Graff G. and Bennett A.â•›B.(2003), ‘Intellectual
Property Resources for International Development in Agriculture; 133
Plant Physiol., 1666–70.
Graff G., Wright B., Bennett A.â•›B. and Zilberman D. (2003a), ‘Accessing
Intellectual Property for Biotechnological Development of Horticultural
Crops’, 58 Cal. Ag., 122–7.
Graff G.â•›D., Cullen S.â•›E ., Bradford K.â•›J., Zilberman D., Bennett A.â•›B.
(2003b), ‘The Public-Private Structure of Intellectual Property
Ownership in Agricultural Biotechnology’, 21 Nature Biotech., 989–95.
Krattiger A. (2007), Intellectual Property Management in Health and
Agricultural Innovation; A Handbook of Best Practices, MIHR-USA
Kryder DR, Kowalski DPand Krattiger AF (2000) ‘The Intellectual
and Technical Property Components of Pro-Vitamin A rice
(GoldenRiceTM): A Preliminary Freedom-to-Operate Review’, ISAAA
Brief #20. ISAAA, Ithaca, NY.
Ye, X.D., Al-Babili S., Kloti, A., Zhang J., Lucca P., Beyer P. and Potrykus I.
(2000), ‘Engineering Provitamin A (Β-Carotene) Biosynthetic Pathway
Into (Carotenoid-Free) Rice Endosperm’, 287 Science, 303–5.
9 Case 6. The Science Commons Material
Transfer Agreement Project
A standard licence clearinghouse?

Thinh Nguyen

9.1 Introduction
Access to unique research resources, such as biological materials and rea-
gents, is vital to the success and advancement of science. Many research
protocols require assembling a large and diverse set of �mater�ials from
many sources. Yet, often the process of finding and negotiating the
transfer of such materials can be difficult and time-consuming. The
ability to locate materials based on their descriptions in journal articles
is often limited by lack of sufficient information about origin and avail-
ability, and there is no standard citation for such materials. In addition,
the process of legal negotiation that may follow can be lengthy and
unpredictable. This can have important implications for science policy,
especially when delays or inability to obtain research materials result in
lost time, productivity and research opportunities. These transactional
barriers for material transfer may ultimately have more impact on the
productivity of basic laboratory science than concerns related to patents
or other intellectual property.1
Science Commons, a project of Creative Commons, is a non-profit
initiative that promotes policy and technology that remove unnecessary
legal and technical barriers to scientific collaboration and innovation.
Science Commons’s Material Transfer Agreement Project seeks to
reduce unnecessary barriers to the transfer and reuse of basic research
materials and reagents by proposing a scalable and flexible infrastruc-
ture for searching, negotiation, and tracking.
The MTA Project is a prototype of what van Zimmeren calls a “stanÂ�
dard licence clearinghouse”.2 However, material transfer agreements are

1
╇ Walsh, J., Cho, C., and Cohen, W., ‘View from the Bench: Patents and Material
Transfers’, 23 Science, 2005, 2002–3.
2
╇ van Zimmeren, E., ‘Clearinghouse mechanisms in genetic diagnostics. Conceptual
framework’, Chapter 5 of this volume.

143
144 Thinh Nguyen

not necessarily, or even frequently, about licensing patents. The vast

majority of common biological research materials are unpatented, and
even when patents may apply, the use of such materials in basic research
seldom implicates the need for complex patent negotiations, despite the
occasional “reach through” royalty, grant back or other obligation on
downstream innovation that may be premised on access to materials. The
usual legal basis for such agreements, however, is located within very tra�
ditional, rather than intellectual, property rights: the ownership of phys-
ical things. These agreements, therefore, are traditionally viewed as a type
of loan of property. While such a prototype involving the standardization
of such agreements within a clearinghouse context may only tangentially
touch upon the issues of building a true patent clearinghouse, they never-
theless offer a perspective from which to view the many challenges, as well
as opportunities, that standardization offers any clearinghouse.

9.2 Material transfer agreements

Material transfer agreements (MTAs) are contracts that govern the
transfer of tangible research materials from one research institution (the
provider) to another (the recipient). They are most commonly employed
in the transfer of “unique research resources” such as “cell lines, mono-
clonal antibodies, reagents, animal models, growth factors, combina-
torial chemistry and DNA libraries, clones and cloning tools (such as
PCR), methods, laboratory equipment and machines.”3 Non-biological
and synthetic materials, such as certain nano-materials, chemical rea-
gents and chemical substrates may be shared under MTAs as well.
This system for transferring these research tools can give rise to a
variety of transaction costs associated with finding and bargaining for
such tools. These problems are particularly acute where the volume
of transactions is high and the sources of unique research resources
required for a given research protocol are diverse. The resulting delays
and failures to agree can impose a significant cost in terms of lost pro�
ductivity and research opportunities.4
First, it may be difficult to locate relevant materials, because most of
them are not widely publicized and not searchable on the web. The tra�
ditional method for a researcher to locate and assemble materials needed
for research is to read relevant journal articles in the field of interest, design

3
╇ ‘Principles and Guidelines For Recipients Of NIH Research Grants And Contracts
On Obtaining And Disseminating Biomedical Research Resources’ 64 Fed. Reg.
72090 (23 December 1999).
4
╇ Campbell, E., et. al., ‘Data Withholding Academic Genetics’, 287 JAMA, 2002,
473–80.
 Case 6. The Science Commons Material Transfer Agreement 145

a suitable research protocol, and contact the providers referenced, unless

the materials are widely known to be available from a commercial vendor.
For materials that are not commercially available, locating available sup-
plies of materials is potentially time-consuming, because the provider of
the materials may not be identified, may not have sufficient supplies of the
materials, may not be able to produce more at a reasonable cost, may not
wish to share them or may have moved to a different institution or job.
After a researcher has located the source of the materials, negotiation
of the MTA may present the next hurdle. As the NIH Principles and
Guidelines state, “each iteration in a negotiation over the terms of a
license agreement or material transfer agreement delays the moment
when a research tool may be put to use in the laboratory”.5 In many
circumstances, the materials are subject to non-standard agreements,
whose terms are not widely publicized. This makes it hard to predict
whether a request for the materials may be simple or difficult to negoti-
ate. Sometimes, a particular material may be subject to multiple MTAs
with potentially overlapping or inconsistent terms.
This creates a number of possible factors contributing to delays
or failure to obtain materials, particularly when a research protocol
requires materials from many different sources. If the offered MTA is
non-standard, then it must be carefully reviewed by a lawyer or special-
ist trained to understand legal issues and the institution’s policies and
objectives. These objectives can include ensuring rights to publish, dis-
seminate and use research results and to license for commercialization
and avoiding conflicting obligations. The reviewer must identify any
objectionable terms and reject them or offer counter-proposals. In some
cases, the reviewer will consult with business managers and researchers
to clarify essential business objectives. However, this process can cause
significant delays or failure to reach agreement, frustrating research
agendas and schedules.6
While these negotiation practices may be useful in the context of high-
value transactions with large pay-offs to the parties, such as royalty-
generating transactions, it is less justified in the context of low financial
value transactions like material transfer for basic research. Due to con-
straints in available legal resources, many technology transfer offices or
licensing counsel must prioritize revenue-generating �transactions, and
resources to negotiate MTAs are limited. This is one factor that may
contribute to longer turnround times for negotiating MTAs.

5
╇ Principles and Guidelines, at 72093.
6
╇ Streitz, W., and Bennett, A., ‘Material Transfer Agreements: A University Perspective’,
133 Plant Physiology, 2003, 10–13.
146 Thinh Nguyen

Some researchers avoid negotiation over MTAs through informal

sharing. From an institutional perspective, such practices are unfavor-
able because they may subject an institution to legal risks, which might
otherwise be mitigated by the use of MTAs. Such practices may also
implicate the intellectual property management policies of the insti-
tution. Finally, informal sharing favors well-connected researchers
and institutions, and therefore, may create or perpetuate disparities in
opportunities for scientific research.
Science Commons proposes to reduce unnecessary transaction costs
for sharing research materials by a creating voluntary and scalable
infrastructure for rights representation and contracting represented by
use standard agreements, web-based metadata and “human-readable
deeds”. These elements arise from design principles introduced by
Creative Commons (CC) in creating the CC licences for copyrighted
works, which have created a large and scalable infrastructure for authors,
scientists, artists, and educators to license their works in standard but
flexible ways. This has created a large and thriving community of users
and a commons of copyrighted materials available under CC licenses.

9.3 Standard contracts

An important element of the success of open source software is the use
of standard licences such as the GPL or other OSI-approved licences,
which have provided a legal framework for collaborative software devel-
opment. Such standard agreements reduce transaction costs by redu�
cing negotiation costs within the communities that routinely use them
and can facilitate regimes of frictionless exchange and re-use. Similarly,
the CC licences provide a framework for the copying, re-mix and distri-
bution of artistic works and other content.
One of the most prominent and successful efforts to standardize bio-
logical material transfers is the Uniform Biological Material Transfer
Agreement (UBMTA), which was developed by the National Institutes
of Health (NIH) in collaboration with research institutions and adopted
by 320 signatories.7 Institutions may sign and deposit a master UBMTA
with the Association of University Technology Managers (AUTM) in
order to be able to complete transactions by executing a short “imple-
menting letter” or cover letter. A similar, shorter standard form called
the Simple Letter Agreement (SLA) for non-profit use is published by
NIH, which recommends its use in connection with NIH sponsored

╇ ‘Signatories to the 8 March 1995, Master UBMTA Agreement’, www.autm.net/

7

aboutTT/aboutTT_umbtaSigs.cfm.
 Case 6. The Science Commons Material Transfer Agreement 147

research.8 However, use of such standards for intra-academic transfers

is not universal, as signatories can opt to use them on a case-by-case
basis, and some institutions may include in these MTAs additional
modifications that would render them non-standard, and thus subject
to individualized review and negotiation.
A further complication is that the UBMTA and SLA are not compat-
ible with use by for-profit entities. This is because the UBMTA and
SLA prohibit transfer to for-profit entities and restrict use to academic
research. The lack of generally accepted standards for these trans-
fers makes collaboration between academic and for-profit research-
ers complex and costly, even when only internal or evaluation use is
contemplated.
The Science Commons MTA Project adopts a two-tiered strategy to
reduce transactional barriers to exchanging materials for research. First,
for intra-academic material transfer, we adhere to the NIH Principles
and Guidelines for Recipients of NIH Research Grants and Contracts
on Obtaining and Disseminating Biomedical Research Resources
(‘NIH Principles and Guidelines’) in calling for more widespread adop-
tion and use of UBMTA or SLA in unmodified form. We are develop-
ing tools and infrastructure to facilitate listing, searching, contracting
and tracking downstream impact for providers and recipients who are
willing to take advantage of these existing standard MTAs.
The NIH Principles and Guidelines also encourage institutions to
“simplify the transfer of materials developed with NIH funds to for-
profit institutions for internal use by those institutions”.9 These guide-
lines recognize that while greater flexibility is required in this area, the
same principles apply to considerations for internal use by for-profit
entities. Science Commons, working with collaborators, has developed
a set of new MTAs that use modular contract options to promote the
development and evolution of standard MTAs for transfers between aca-
demia and industry. The new MTAs published by Science Commons
will provide for a more flexible range of options, while at the same
time adhering to the core guidelines articulated by the NIH Principles
and Guidelines. For example, they distinguish between activities for
internal use and commercialization, and they do not provide options
that restrict publication or that contain reach-through royalties, grant
backs, commercialization options or other obligations with regard to
downstream inventions made by the recipient. We are also developing

8
╇ ‘Simple Letter Agreement for the Transfer of Materials’, http://ott.od.nih.gov/.
9
╇ Principles and Guidelines, at 72093.
148 Thinh Nguyen

a simple interface that can guide a user through key considerations and
options associated with selecting a particular MTA.

9.4 Standard rights description framework

The use of semantic web metadata to identify rights associated with
copyrighted works has contributed to powerful searching and filtering
capabilities for web-based works available under Creative Commons
licences. These metadata use the Resource Description Framework
(RDF), a robust Web-based representation language for Universal
Resource Identifiers (URIs) published by W3C.10 This open framework
allows physical resources in the world (such as unique research �materials)
to be represented in a machine-readable form that is designed to be
compatible across a variety of software and operating system platforms.
For example, more than 140 million objects on the web are tagged with
Creative Commons licences, and they can be found by using advanced
search options available from search sites such as Yahoo! and Google.
This has demonstrated considerable potential to create a scalable, low-
cost infrastructure for describing resources and associated rights and
permissions.
Science Commons will use a similar framework to describe unique
research materials and the MTAs under which they are offered. Each
material that is listed on the web and available under a standard MTA
can be associated or tagged with metadata, which allows for similarly
powerful searching and filtering capabilities by software and search
engines. For example, an academic researcher might be able to search
for all available animal models for neurobiological research that are
available under the UBMTA or SLA, and her counterpart at a for-profit
laboratory can search for similar materials that might be offered under
a standard Science Commons MTA. This will permit researchers to
plan research protocols with greater visibility into the likelihood that
unique research resources will be available quickly or whether more
extended negotiations will be required.
The association of this metadata with scientific articles may raise
exciting new possibilities. For example, authors can supply a unique
link from materials described in the “materials and methods” section
of a scientific article to the hosting material depository where they can
be found and ordered. Then, a researcher referencing such a link can
use the supplied metadata to identify and filter acceptable MTA offers

╇ Shadbolt, N., Berners-Lee, T., and Hall, W., ‘The Semantic Web Revisited’, 21 IEEE
10

Intelligent Systems, 2006, 96–101.

 Case 6. The Science Commons Material Transfer Agreement 149

and then order online if possible. The widespread use of such a sys-
tem may eliminate much of the detective work currently involved in
tracking down materials and enable greater automation of ordering and
fulfillment.
The association with materials with the literature using metadata can
also permit the research impact of materials to be tracked and analyzed
by software, giving researchers and funding institutions additional
measures of scientific impact. Creative Commons has demonstrated
this capability with its CCMixter software, which allows metadata to be
used to track and analyze downstream impact of creative works, such
as remixes and other derivative works originating from a given work.11
In the materials context, this may permit the impact of research to be
evaluated not only in terms of journal citations but also the frequency of
re-use of unique research materials generated by that laboratory.
In addition to metadata, Science Commons is developing “human
readable deeds” for each standard MTA. These deeds will be hosted
at unique web URIs to which users and software applications can link.
Each, in turn, provides links to the relevant legal text and associated
metadata for that MTA. Each deed describes a unique standard agree-
ment in summary terms, as intended to be understood by non-legal
audiences, including basic iconography that will enable researchers to
identify at a glance the most relevant rights and obligations associated
with a material. These can also be printed out and attached to materials
to describe relevant MTA limitations, similar to the way that Material
Data Sheets summarize salient physical and chemical properties of
materials.
Together, these elements create the basic outlines of an infrastruc-
ture for enabling Web-based transactions in materials. Web-based
transactions have revolutionized e-commerce, as evidenced by sites like
Amazon.com and Ebay. Yet, so far, we have seen little evidence that
these models are being adapted with nearly that level of success for solv-
ing material transfer problems. We believe that such success requires
significant standardization of policies, contracts and technology. The
elements of our MTA project will offer nucleating agents around which
such efforts can grow and evolve. We are also collaborating with the
iBridge to deploy the initial prototype of this MTA system through
the iBridge network. This will provide us with an opportunity to con-
duct a beta test of our software and tools and obtain feedback from key
stakeholders.

11
╇ Creative Commons, ccMixter, http://ccmixter.net/.
150 Thinh Nguyen

Reducing the time it takes for scientists to obtain basic research

materials is vital for accelerating scientific discovery. Standardization
of policy, contracts and technology is necessary in order to deliver the
relatively frictionless transaction systems that have revolutionized web
commerce. The system that we propose, which includes greater use
of standard contracts, a web-based rights description framework, and
other educational tools, is the first step in that direction. The possible
benefits will accrue not only to immediate stakeholders, in the form of
cost savings and increased productivity, but ultimately to society as a
whole from greater innovation and scientific progress.

R eferences
Campbell, E., et. al., ‘Data Withholding Academic Genetics’, 287 JAMA,
2002, 473–80
‘Principles and Guidelines For Recipients Of NIH Research Grants And
Contracts On Obtaining And Disseminating Biomedical Research
Resources’, 64 Fed. Reg. 72090 (23 December 1999)
Shadbolt, N., Berners-Lee, T., and Hall, W., ‘The Semantic Web Revisited’,
21 IEEE Intelligent Systems, 2006, 96–101
Streitz, W., and Bennett, A., ‘Material Transfer Agreements: A University
Perspective’, 133 Plant Physiology, 2003, 10–13
Walsh, J., Cho, C., and Cohen, W., ‘View from the Bench: Patents and
Material Transfers’, 23 Science, 2005, 2002–3
van Zimmeren, E., ‘Clearinghouse mechanisms in genetic diagnostics.
Conceptual framework’, Chapter 5 of this volume
10 Case 7. The collective management of
copyright and neighbouring rights
An example of a royalty collection clearinghouse

Jan Corbet

10.1 Introduction
In a collective management system, owners of rights authorise collec-
tive management organisations to administer their rights – that is to
negotiate with users, deliver licenses, collect fees and distribute them,
and monitor unlicensed uses.
Copyright and neighbouring rights are exclusive rights and should
normally be exercised individually by the owner of the right himself.
But as early as the first half of the nineteenth century it appeared that
certain rights, in the first place the right of public performance of musi-
cal works, could not in practice be exercised individually.
The number of venues at which musical performances took place and
the number of copyright owners whose rights were involved were so
large as to preclude altogether the possibility of individual negotiation
between right owner and user. Performances by means of recordings
and radio have multiplied the scale of the problem still further. In these
circumstances the only feasible method of enforcing the performing
right was the establishment of organisations capable of representing the
rights of thousands of individual copyright owners and thus being in a
position to negotiate with all music users.
Among the first organisations to have been established are the
authors’ societies SACEM (France, 1851), SIAE (Italy, 1882), GEMA
(Germany, 1903) and PRS (United Kingdom, 1914).
At the outset, authors’ societies represented their own national reper-
toire, but they rapidly entered into bilateral representation agreements
with organisations of other countries and created a ‘worldwide web’,
allowing any national organisation to license the use of, practically, the
whole world music repertoire.
The advance of technology with uses of copyright works such as
film, television, cable television, reprography and home copying made

151
152 Jan Corbet

individual licensing impracticable over a much wider field. The struc-

tures and methods of the performing societies began to serve as a model
for other categories of authors, such as writers, playwrights, film direc�
tors, painters, sculptors and photographers.
However, in many countries these categories of authors are still not
organised or, if they are, the scope of the management of their societies
is limited to only one or a few forms of use of copyright works.
The recognition of neighbouring rights (i.e. rights of performers,
producers, broadcasters) has also led to the establishment of collective
management organisations. Although some basic neighbouring rights
can be exercised on an individual basis, the rights of performers and
phonogram producers with regard to the public communication and
the broadcasting of phonograms called for collective management.
However, as collective management of neighbouring rights has started
more recently, the international network of bilateral agreements, such
as the authors’ societies have created, is not fully established yet.
Finally, several national legislations have made collective manage-
ment of copyright and neighbouring rights compulsory in some areas,
such as reprography, home copying, lending and cable television, some-
times in combination with a non-voluntary licence system.

10.2 Forms of collective management

Most collective management organisations are non-profit-making pri-
vate corporations, established on the basis of the voluntary initiative
of copyright owners. However, in a number of developing countries,
mainly in Africa, public or semi-public organisations are doing well
and are probably the most suitable formula in the specific conditions
prevailing there. But even private corporations are generally supervised
by public authorities, which will be discussed later.
The scope of the management varies greatly, as well as regards the
categories of works covered, as regarding the forms of use of the works.
Some authors’ societies manage all categories of works for all forms of
uses (e.g. SABAM, Belgium; SGAE, Spain; SIAE, Italy); others manage
only musical works but both for performances and for recordings (e.g.
GEMA, Germany; SUISA, Switzerland); others again manage only
musical works (e.g. SACEM, France) or dramatic works (e.g.€ SACD,
France) and for performances only.

10.3 Methods of collective management

The ‘raison d’être’ of collective management organisations is to col-
lect and distribute appropriate remunerations for the right owners, to
 Case 7. The collective management of copyright 153

monitor all uses and eventually to enforce the copyrights or neighbour-

ing rights in their custody. A reliable documentation system is therefore
essential.

Documentation
Documentation and the exchange of documentation between collec�
tive management organisations present a very heavy burden. The most
important problem is that of the ‘dormant repertoire’, that is works
stored in the organisation’s card index or database, which are very
rarely or sometimes nevermore used. The dormant repertoire probably
represents about 85% of all repertoires, particularly so in the area of
pop music, where the production of new works is enormous and the
life-span of the works is ephemeral. The organisations rely more and
more on electronic data processing and international tools have been
developed, updated daily, such as the IPI-list identifying authors, com-
posers and publishers; the ISWC, identifying musical works, the ISRC,
identifying recordings, the ISAN identifying audio-visual works. The
ISTC, identifying textual works, is under development.
All collective management organisations’ databases are operating
with these identifiers and are all available on the CIS-net, an intranet
for the authors’ societies, working under the umbrella of CISAC, the
International Confederation of Authors’ and Composers’ Societies.
It is planned, in the future, to incorporate these identifiers in all
digital recordings and broadcasts as metatags, allowing the identifica-
tion of the works and the allocation to the correct rights owners of the
fees collected for any use of the works.
It will be clear that this infrastructure represents an important part of
the administration costs of the collective management organisations.

Collection
The typical instrument of licensing by collective management organ-
isation is the ‘blanket licence’ under which the user is entitled to make
use of any or all works or other protected material in the organisa-
tion’s repertoire for the purpose, and within the period indicated in
the licence.
The ‘blanket licence’ is the most common method used for musical
works, with the exception of concerts of classical music which are
licensed on a per work basis.
Conversely, for dramatic and dramatico-musical works, the licensing
on a per work basis is the rule and the blanket licence is applied only
for broadcasting.
154 Jan Corbet

Tariffs and other conditions of licences are mostly negotiated with

organisations of users.
In the majority of countries, there is some kind of government control
on the licensing practice of the collective management organisations,
either by approval of the tariffs and the standard agreements, or by spe-
cial tribunals dealing with conflicts between organisations and users.

Distribution
The distribution rules of the collective management organisations are
complex. Distribution of fees collected on a per work basis is fairly sim-
ple: the fees are allocated to the used work(s) and distributed among the
relatively few rights owners of these works.
But the distribution of fees collected under a blanket licence is
another matter. Here an elaborated points system is needed to take into
account the relative importance of the works and uses. The number of
allocated points reflects the length of the work and the artistic category
to which it belongs (i.e. classical music, pop music, poem, story, stage
play, opera, ballet etc.).
Artistic value or merit are not taken into consideration, as this would
be contrary to the principles of copyright.
However, artistic evaluation may play a role in establishing the cat-
egory in which the work is classified.
Essential for correct distributions are the data concerning the uses
of the works, allowing distributing the fees accordingly. Obtaining and
analysing full information concerning all uses of all works is, of course,
impossible and would not be feasible for obvious cost reasons. Collective
management organisations have to strike a balance between creating a
reliable basis for the distribution and avoiding unreasonable costs. As a
rule, broadcasting organisations and phonogram producers provide full
information – as neighbouring rights owners they are interested parties
in the distribution of the equitable remuneration for communication to
the public of phonograms – and the outcome of the distributions based
upon these data is extrapolated to the distribution of fees collected in
other areas.
Another method, applied for fees collected in places such as bars,
restaurants, shops etc., is a sampling system.
However, especially European collective management organisations
are reluctant to apply extrapolation and sampling systems as they obvi-
ously favour the international repertoire. European organisations will
go to great lengths in order to collect as full information as economically
 Case 7. The collective management of copyright 155

reasonable, aiming at a reliable distribution and the least detrimental to

the less important rights owners.

10.4 Cultural and social purposes

Again, European collective management organisations do not think
that the administration of the rights of their members is their only pur-
pose, but they feel that they also have responsibilities on a social and a
cultural level.
At least authors’ societies do so, and performing artists societies will
probably do the same in the future.
Authors and artists are people who tend to lead a life which is often
irregular and whose careers do not always fit into the administrative
demands of traditional welfare schemes with the unfortunate result
that they often remain outside any scheme.
Therefore, most authors’ societies have organised specific health
insurance and pension schemes.
On the other hand, the difficult economic situation has led public
authorities, traditionally responsible for the funding of cultural �activities
in Europe, to reduce drastically the funds available. Therefore, the
�collective management organisations try to take care of some more vul-
nerable areas, such as performance of contemporary music, avant-garde
theatre and poetry,and art cinema.
Anyhow, deductions from collected fees allocated to social and cul-
tural purposes will not exceed 10%.

10.5 Costs of collective management

It is sometimes said against collective management that the costs
involved are too high. But one should not overlook that in the absence
of collective management, the transactional costs involved for users
having to deal with individual rights owners, assuming that were pos-
sible, would be considerably higher.
The administrative costs of the collective management organisations
are, in general, around 15–25% of their gross collections for music
performances, around 10% for professional stage performances and
around 5% for mechanical reproduction.
For several reasons, it is not possible to suggest a maximum accept-
able percentage of administrative costs. Much depends on the intensity
and the precision of the activities of the organisation. The operations of
some organisations are fairly simplified, while the collection and distri-
bution system of other organisations is much more sophisticated.
156 Jan Corbet

It has sometimes been argued that an alternative solution would be for

the exclusive rights of copyright and neighbouring rights owners to be
replaced by a system of non-voluntary licences, under which they would
only be entitled to equitable remuneration. In fact, the inter�national
conventions governing copyright and neighbouring rights allow the
possibility of non-voluntary licences, and a number of national legis�
lations have introduced such systems.
But the mere existence of non-voluntary licences in respect of specific
uses of copyright or other protected material will not in itself provide
a complete solution. The right owners are still to obtain payment and
they will always need a collective management organisation to identify
the uses, to collect fees accordingly and even, in the case of a simple
compulsory licence, to negotiate the appropriate remuneration; and last
but not least, to ensure a correct distribution of the collected fees.
Another alternative, which has been actively promoted by American
academic circles, are the so called ‘Creative Commons licences’. In this
system, the copyright owner allows the licensee to use the work, or
other protected material, under more or less restrictive conditions: i.e.
only non-commercial uses, and without creation of derivative works
(translations, adaptations); or commercial uses, without creation of
derivative works; or allowing creation of derivative works, but provided
a cross-licence is granted; and so on.
However, this system presents several serious flaws. CC licences can-
not be limited in time, and are irrevocable. The copyright owner can-
not change his mind. Many legal questions remain. What happens if
the conditions of the licence are not complied with? And, above all, CC
licences have no mechanism to provide for payment. This makes CC
licences unattractive for the author and artist who want to make a liv-
ing out of their work. CC licences seem only appropriate for academic
research and writing, and some avant-garde music or poetry. Anyway,
CC licensing is only possible in an on-line environment.

10.6 Challenge of the new technologies

New technologies, in particular the digitisation of works, have proved a
formidable challenge to collective copyright management. Digitisation
has made possible new technologies of recording and copying without
loss of quality; new kinds of carriers allowing multimedia recordings,
such as CD-ROM, CD-I and the like; and last but not least, has allowed
the creation and the development of the Internet, the most powerful
instrument in history of dissemination of all kinds of data, including
copyright material.
 Case 7. The collective management of copyright 157

All these applications of digital technology have raised complex and

difficult legal questions, which are beyond the scope of this paper and
will not be discussed here. We will focus on the managerial and organ�
isational aspects arising from these new ways of exploitation of works
for collective management organisations.
Digital copying, in fact, can be managed along the same lines as the
old analogue copying. In most countries, in the EU anyway, analogue
home copying was allowed under a legal licence scheme. Collective
management organisations distributed the proceeds among the different
rights owners. Similar systems with appropriate tariffs, may work satis-
factorily for digital home copying too. However, some rights owners, in
particular phonogram and audiovisual producers, favour techno�logical
solutions, by incorporating in the original carriers a device allowing the
making of only one copy, or a limited number of copies, or even prohib-
iting copying altogether.
For several reasons, which cannot be discussed here, authors and
their collective management societies are not always happy with these
solutions, which raise also delicate legal and policy issues.
Multimedia carriers, already, have required some reorganisation
of the collective management organisations. As seen before, collective
management is generally organised along categorical lines: organisa-
tions for authors, organisations for performers, organisations for pro-
ducers. And authors, mostly, have separate organisations for writers,
for composers etc.
But multimedia carriers reproduce all kinds of works, textual,
musical, visual, audiovisual, implying licences from many kinds of
rights owners. In order to allow this new technology to develop, collec�
tive management had to find ways of working together and, ideally, to
form one-stop shops, where users could find all licences needed.
In several EU countries, tentative one-stop shops have been organ-
ised. Most are no more than clearing centres, identifying works and
directing the user to the correct rights owner for licensing. Indeed,
licensing multimedia is a very difficult task. The collective manage-
ment organisation has to strike a balance between the respective value
of several kinds of works, textual, musical, visual etc. Simply adding
up the claims of all rights owners would lead to prohibitive tariffs. But
finding a generally accepted balance is far from easy.
An effectively direct licensing collective management organisation
is the French SESAM. But still, it associates only authors’ societies;
no performers’ or producers’ organisations. Taking their claims into
account in one single licence has proven to be a bridge too far.
A real, all encompassing one-stop shop is still far away.
158 Jan Corbet

The Internet, however, has been, and still is, the fiercest challenge.
Allowing transmission on-line, in real time, throughout the world, of
all kinds of data, works and other protected material, it not only needs
licensing covering all rights concerned but also worldwide licensing.
As seen before, authors’ societies, in particular composers’ societies,
have developed a worldwide system of reciprocal agreements, allowing
a society in any given country to license the world repertoire. Until the
seventies, these agreements, as a rule, were exclusive. In the EU mem-
ber states, as a result of the EU competition authorities taking action,
they no longer are; but as a matter of fact the societies still continue
to license in their own country only, for the obvious reason of avoid-
ing unnecessary expenses resulting from multiplicating monitoring
and enforcement. The EU Commission has acknowledged that prac-
tice until now. But on the Internet this was not longer possible. The
societies, under the aegis of CISAC, then developed a new standard
agreement, known as the Santiago agreement, allowing the society of
the economic residence of the website to license worldwide.
However, the phonogram producers’ collective management organÂ�
isations developed another standard agreement, allowing every organ-
isation to license worldwide, provided it charged the tariffs of the
country(ies) of performance and not only the tariff of the country of
the website. Besides, this agreement was limited to website broadcasts,
whereas the Santiago agreement allowed licensing of all websites.
The EU Commission has approved the phonogram producers’ stanÂ�
dard agreement (decision of 8 October 2002 ‘Simulcasting’)1 and has
aired some criticism of the Santiago standard agreement, which has
been dropped by the authors’ societies lately. The situation now remains
unclear. The Commission has recently published a ‘Recommendation
on the cross-boarder collective management of copyright in the field
of on-line music services’ (18 October 2005) which will be discussed
further.

10.7 Collective management and competition law

Collective management organisations are, by nature, monopolies and
competition law looks on a monopoly a priori with suspicion. This has
led to several conflicts in many jurisdictions.
In the United States, under pressure of the competition authorities,
two and later even three music performance right societies have been
created, in order to eliminate a monopoly in this field. Still today, the

╇ OJEC, L107/58, 30 April 2003.

1
 Case 7. The collective management of copyright 159

blanket licence, the licensing method typical for collective manage-

ment, is under legal scrutiny.
In the European Community, although a dominant position is not in
itself condemned by the competition rules, but only an abuse of it, col-
lective management organisations have already been brought to amend
membership rules, and tariffs.
Here is a real problem. Copyright and neighbouring rights are, by
nature, exclusive rights. If exclusive rights are collectively adminis-
tered, this should not influence the exclusive nature of such rights.
It is generally accepted that collective management of copyrights and
neighbouring rights is not only useful for the rights owners but is also
to the advantage of users, who would otherwise be confronted with
unbearable transactional costs. It is obvious that the full advantages
of collective management can only be obtained by means of one single
organisation, at least in the same category of rights in each country.
As discussed earlier, several national legislations have recognised
the advantages of collective management and have even gone so far as
to make collective management compulsory for some forms of use of
copyright works or other protected material. It is not very coherent to
afterwards wipe out the advantages of the imposed collective manage-
ment by strictly enforcing competition law rules.
But it cannot be disregarded that abuse of the monopoly remains a
possibility and appropriate guarantees seem to be necessary.
This dilemma is even more difficult when it comes to one-stop shops
which associate still more rights owners and acquire a still more impor�
t�ant dominant position, but which, as seen before, are now indispens-
able in the new digital environment of multimedia and the Internet.
This has not escaped the attention of the EU Commission, but its
attitude regarding the collective management organisations is some-
what ambiguous.
On the one hand, the Commission calls for the creation of one-stop
shops as an answer to the market’s need for fast and comprehensive
licences and to reduce transactional costs. The Commission has done
so already in the ‘Green Paper on Copyright in the Information Society’
(1995),2 in the Copyright Directive (2001)3 and again in the recom-
mendation mentioned earlier.
But on the other hand, the Commission has never taken a clear stand
on the applicability of competition rules on collective management
organisations, in particular one-stop shops.

2
╇ Doc COM (95) 382 final, 19 July 1995. ╇ OJEC, L167/10, 22 June 2001.
3
160 Jan Corbet

The EU Court of Justice has been, in general, rather favourable to col-

lective management organisations, in its SABAM decision (27 March
1974)4 and the Coditel decisions (18 March 1980 and 6 October 1982)5
but has been critical of some tariffs: SACEM (13 July 1989).6
Be that as it may, in most countries collective management organ�
isations are under scrutiny from two authorities: on the one hand, the
�general competition authority; and on the other hand, a specific author-
ity, which may be a public office (Germany), a governmental service
(Belgium, France) or a tribunal (UK, Canada).
A public office or service will generally look into the terms of mem-
bership, the participation of rights owners in decision making, the
documentation, collection and distribution systems etc. A tribunal will
put the tariffs to the test, which, in fact, is somewhat at odds with the
exclusive nature of copyright.
In the presence of such supervising authorities, competition author�
ities will limit themselves normally to cases of abuse. Collective man-
agement organisations of copyright are thus among the most closely
scrutinised enterprises in modern society. Maybe this is unavoidable,
given the great importance of copyright management for the cultural,
social and economical development of the information society.

R eferences
M. Ficsors Collective Administration of Copyright and Neighbouring Rights,
Geneva, 1990.
D. Peeperkorn and C. Van Rij (eds.), Collecting Societies in the Music Business,
Apeldoorn – Antwerpen, 1989.

╇ (1974) ECR 317; 2CMLR 283 (1974).

4
╇ (1980) ECR 881; (1987) ECR 3381.
5

╇ (1989) ECR 2521.

6
11 Comment on the conceptual framework for a
clearinghouse mechanism

Michael Spence

10.1 Introduction
The notion of a royalty clearinghouse for biotech patents is beguil-
ingly simple. So many problems would seem to be solved if there were a
one-stop shop in which scientists could determine whether their activ-
ities were liable to infringe some particular gene patent, to determine
whether any relevant genetic invention could be licensed, to pay for its
use and to proceed on their voyage of scientific discovery.
Van Zimmeren’s fascinating paper makes it clear, however, that it
may be a long time before the dream of such a one-stop shop becomes
a reality. She calls it ‘too big a leap forward’.1 I would go even fur-
ther and suggest that there is much about the idea of a one-stop shop
that is not only unachievable, but also potentially undesirable, unless
appropriate standards of genetic patentability are firmly in place. Real
thought must be given to whether the potential problem of the anticom-
mons is not, after all, that too many genetic patents are granted and too
few defences to infringement and compulsory licences available. If it is,
then clearinghouses may even exacerbate, rather then relieve, the prob-
lem. Moreover, the analogy of a patent clearinghouse and a copyright
collecting society seems to me to be a false one.
In her paper, van Zimmeren considers the advantages of the vari-
ous clearinghouse mechanisms, and in particular the royalty collecting
clearinghouse, in terms of their ability to meet three types of problem.
First, she shows how a royalty collecting clearinghouse could reduce
the potentially large transaction costs – including search, bargain-
ing and enforcement costs – that face scientists undertaking biotech
projects. This is because a clearinghouse could coordinate the promo-
tion of genetic inventions, on some models of the clearinghouse it could
license them on standard terms and even collect royalties, and it could
operate to identify infringements as a watchdog for the patent holders.

1
╇ van Zimmeren, ‘Clearinghouse mechanisms in genetic diagnostics. Conceptual
framework’, Chapter 5 of this volume.

161
162 Michael Spence

Second, van Zimmeren claims that a clearinghouse mechanism could

prevent royalty stacking by offering the potential licensee a package of
inventions for a particular project at a price-controlled rate. Third, she
claims that a clearinghouse mechanism could, at least to some extent,
prevent non-cooperative patent holder behaviour by requiring recipro-
cal positive comity or grant back clauses in the standardised licences.

10.2 Evaluation of the patent clearinghouse

model in€genetics
My difficulties with the clearinghouse model relate on the one hand to
its vaunted advantages in relation to transaction costs, and on the other
in relation to its alleged advantages concerning royalty stacking and
non-cooperative behaviour.

Reduction of transaction costs

As for transaction costs, it is plausible that a clearinghouse could achieve
some reduction of such costs, and be effective to facilitate licences for at
least the most straightforward uses of the most straightforward inven-
tions. Nevertheless, the difficulties that van Zimmeren points out in
her paper are real. These difficulties are of three types. First, they relate
to the problem of comprehensiveness. Transaction costs would only be
reduced if the library of patents that a clearinghouse controlled were
comprehensive, but there may be little incentive for the holders of the
most valuable patents to join. Moreover, the more comprehensive the
relevant library, the more likely it would be to give rise to competition
law problems. Second, difficulties arise because, even in so restricted
a field as genetic diagnostics and far more in more complex fields such
as the licensing of transgenic plants and animals, biotech licensing
arrangements are rarely ‘standard’. Yet the reduction of transaction
costs is usually seen as dependent upon standardised licensing. It may
be impossible to develop an appropriate library of standardised licences
for all but a limited range of uses of a limited range of inventions. In
�particular, the fact that the licensing of know-how could not be stand-
ardised means that a royalty collecting clearinghouse would only be
appropriate for ‘patented DNA sequences and mutations, and a handful
of commonly used diagnostic tools’. Further, any library of standardised
licences would need to be constantly updated or it could institutionalise
the use of inappropriate arrangements by ossifying licensing practices
at one point in the development of very fast-moving industries. Third,
the administration of at least royalty collecting clearinghouses would
 Comment on the conceptual framework for a clearinghouse 163

be expensive and require considerable expertise: not least because bio-

tech patents are often uncertain in scope and it is difficult to determine
when a licence is needed.
In addition to these difficulties I would argue that reducing transac-
tion costs might – and I put it no more highly than that – have a perverse
unforeseen consequence. As van Zimmeren points out, empirical work
in the biomedical sciences is equivocal as to whether the anticommons
effect can be demonstrated. Importantly, it suggests that many scien-
tists, both in universities and in industry, currently ignore the question
of whether their activities are covered by a patent, at least over �so-called
‘research tools’.2 Thus, for example, ‘only 2 percent of academic bench
scientists have begun to check regularly for patents that might impinge
on their research’,3 and even in industry the ‘infringement of research
tool patentsâ•›…â•›appears to be pervasive’.4 Some have argued that this
is why the anticommons effect is not currently as serious an issue as
it might be: lax standards of patentability do not give rise to serious
anticommons problems because no one pays attention to many of the
patents issued. The reasons that these patents are ignored are numer-
ous, including a general sense that there is, or ought to be, a so-called
‘research exemption’ protecting at least academic researchers from
patent infringement suits when they use protected research tools with-
out a licence.5 But it may also be that this wilful ignorance is sustained
by an awareness, however tacit, that transaction costs are prohibitively
high. They are, after all, high both for the potential licensee (who is
likely to use a genetic research tool if it is physically available to her
without bothering about licensing), and for the potential licensor (who
is unlikely to detect its use). If this is right, then reducing transaction
costs without also thinking carefully about standards of patentability in
relation to biotechnological inventions, may have the perverse effect of
increasing the anticommons effect. This would particularly be the case
if the clearinghouse came to see itself as an enforcement agency, a prob-
ability to which we will return.
So in relation to clearinghouse mechanisms as a means of reducing
transaction costs, I would give a cautious endorsement. I am perhaps

2
╇ Walsh, J. P., Arora, A. and Cohen, W.M., ‘Effects of Research Tool Patents and
Licensing on Biomedical Innovation’, in Cohen, W.M. and Merrill, S.A. (eds.), Patents
in the Knowledge-Based Economy Washington: NAP 2001, 285 (‘Effects of RTPs’)
at 324–8 and National Research Council of the National Academies – Committee
on intellectual Property Rights in Genomic and Protein Research and Innovation,
Reaping the Benefits of Genomic and Proteomic Research: Intellectual Property Rights,
Innovation, and Public Health Washington: NAP 2003 (‘Reaping’) at 119–27.
3
╇ ‘Reaping the Benefits’, 122. 4╇ ‘Effects of RTPs’, 327.
5
╇ ‘Reaping the Benefits’, 28.
164 Michael Spence

less enthusiastic than van Zimmeren, but I can see the attractiveness of
such a proposal, provided that we can be confident about the standards
of gene patentability and the range of available defences to infringement.
One alternative way of reducing transaction costs without some of the
undesirable consequences of the clearinghouse mechanism would be to
have a public actor charged with the task of devising and encouraging
the use, not of standard licences, but of standard clauses for licences,
standard mechanisms for resolving common licensing problems. This
is a possibility that Paul David and I have suggested elsewhere as a solu-
tion to some of the problems associated with transaction cost barriers to
collaborative e-science.6

Prevention of royalty stacking

However, more important than my concerns about clearinghouse
mechanisms as a means of reducing transaction costs in the licensing of
biotech patents, are the difficulties that I have with a royalty collecting
clearinghouse in relation to its supposed advantages of preventing roy-
alty stacking and non-cooperative behaviour. In relation to these issues,
I am even more cautious about the ability of clearinghouse mechanisms
to control for the anticommons effect. Again the real problem seems
to be standards of patentability and the (non)availability of defences
and compulsory licences: the possibility of a clearinghouse mechanism
ought not to be allowed to deflect attention from these issues.
The first thing to emphasise is that even if a clearinghouse mechan-
ism could reduce all transaction costs to zero, so that everyone could
easily pay for the use of a particular invention, that does not mean
that everyone should pay for its use. This is particularly the case with
upstream inventions that are useful as tools in research, and inventions
that have been produced by the investment of public research funds.
The appropriate scope of the research exception, and whether the pub-
lic ought to be charged the patent premium on inventions that are the
product of research funds the public purse has provided, are conten-
tious and difficult issues. They are not resolved simply because licens-
ing is possible, or even easy. Indeed, we have seen that many academic
scientists, and some in the private sector too, seem to operate on the
mistaken basis that a very broad research exemption is already available
in most jurisdictions.

╇ David, P. A. and Spence, M., Towards Institutional Infrastructures for E-Science: The
6

Scope of the Challenge Oxford: Oxford Internet Institute Research Report No. 2,
2003.
 Comment on the conceptual framework for a clearinghouse 165

Second, there is the important institutional question of by whom the

clearinghouse would be ‘owned’, and in whose interests it would act.
Van Zimmeren suggests that ‘a clearinghouse could be administered
by either a not-for-profit or profit (private) organisation’. The issue
here is whether the clearinghouse would operate to squeeze as much
return as it could from the licences within its portfolio, an approach
that might attract members and endear it to them, or attempt to ful-
fil a public duty by maximising activity in the biomedical sciences. If
experience of the copyright collecting societies is any guide at all, then
the former is more likely. The fact that some copyright collecting soci-
eties have funds for cultural benevolence does not alter their essential
function as IP policemen. Indeed, without the agency of a clearing-
house, the holder of a genetic patent may enter into bilateral licensing
negotiations as both an owner of technology to which the other party
seeks access, and perhaps also a user of technology that the other party
owns. This may temper her desire to exploit the patents that she owns
to the full.7 However, if a clearinghouse has control over the patents,
then it only ever enters negotiations as ‘owner’ and not as ‘user’. It is
not surprising, therefore, that the copyright collecting societies have
been found, as van Zimmeren points out, to be susceptible to anti-
competitive behaviour. If the clearinghouses are big enough effectively
to reduce transaction costs, and aggressive in the promotion of their
members’ interests qua patent holders only, anti-competitive behav-
iour is almost inevitable.
One context in which this problem of who owns the clearinghouse
and in whose interests it acts would become particularly acute, is the
context of royalty stacking. The suggestion of van Zimmeren’s paper is
that the clearinghouse could act as a price-control mechanism, to ensure
that only a ‘reasonable’ total royalty was paid. At one level this makes
sense. A clearinghouse would realise that an excessive total licensing
fee might mean that a project was not undertaken and that no licensing
fees at all were paid. So even if its intention were solely to maximise
return from its patent portfolio, the clearinghouse would have an incen-
tive to cap the total fee for an individual project to ensure some level
of return. But pricing that total fee would be far from straightforward.
The fact that the different patents were complementary, rather than
substitutes, would have a tendency to inflate the price of the total pack-
age. In copyright, where pricing should be more straightforward, the
control has been necessary both of competition law, and also, in many

7
╇�����������������������������������������������������������������������������������������
Indeed, there is some empirical evidence that this type of consideration curbs infringe-
ment suits in the biotech industry, see ‘Effects of RTPs’, 295.
166 Michael Spence

jurisdictions, of specialist tribunals to which resort can be had if a col-

lecting society does not license on reasonable terms. If the problems of
patent thickets and royalty stacking emerge because too many patents
are granted in the field on biotechnology, the clearinghouse, with its
need for this elaborate type of pricing control, seems an odd way to
resolve the problem.

Reduction of uncooperative patent holder behaviour

Finally, on the issue of uncooperative patent holder behaviour, the
clearinghouse proposal also seems to skirt the real problem. There is an
important difference here between copyright, where control over the use
of a work may be tool for protecting an author’s expressive autonomy,
and patent, where it is generally assumed that control over the use of
invention is a tool for maximising an inventor’s return from her work.
We may recognise that an inventor should have the right to prevent the
use of her technology for a purpose of which she disapproves, but we
would normally see the widest possible distribution of an invention as
the purpose of patent law. The patent compulsory licences for non-use
of the invention would be unthinkable in copyright law. If there is a
problem, then, in relation to uncooperative patent holder behaviour,
particularly as regards research tools, then there may be no good reason
to rely on the circuitous method for prising inventions out of the pat-
ent holder’s hands described in van Zimmeren’s paper. A compulsory
license provision, though itself not straightforward to devise, would
seem a more obvious mechanism for prising control over the invention
from patent holder’s grasp, while still ensuring that she enjoys a reason-
able income flow.

Conclusion
I would argue, therefore, that a royalty collecting clearinghouse may be
a very useful way of reducing transaction costs, but that more radical
solutions are likely to be needed if the problems of royalty stacking and
uncooperative patent holder behaviour are really to be overcome.

10.3 Comparison copyright collecting societies and

patent royalty clearinghouses
In closing, I think it important to stress that the analogy between copy-
right collecting societies and patent royalty collecting clearinghouses
seems to me only very inexact. The term ‘intellectual property’ seems
 Comment on the conceptual framework for a clearinghouse 167

to be of nineteenth-century American coinage8 and has only arrived

even more recently in many languages. Real differences exist between
the purposes and contexts, both cultural and economic, in which
these regimes operate. Thus, first, gene patents are most frequently for
�upstream inventions, while copyright usually protects works that are
finished products. Thus if a collecting society wrongly prices a work,
there may be an available substitute. At most a particular use of the
work is frustrated. For a gene patent, there may be no substitute and,
if the patent is an upstream patent for a research tool, a whole pro-
ject may be frustrated and technical progress hindered. Second, the
scope of a copyright work is in general less contentious than the scope
of patented invention and so a copyright collecting agency can deter-
mine more easily whether a work has been used, than a royalty collect-
ing clearinghouse could determine whether a patent has been. Third,
members of a copyright collecting society generally have an interest
in maximising the distribution of their work. We have seen that this
may not be the case with patent holders, who may want to use their
patents strategically to hinder the work of competitors. It is interesting
that there is no copyright collecting society for computer programs, the
copyright context most analogous in this respect. Fourth, the copy-
right collecting societies each control the use of very particular types
of work in very particular contexts (mostly musical and literary works
and€ mostly in relation to public performance and mechanical repro�
duction). Determining appropriate licences for those contexts is more
straightforward than licensing gene patents that may be used for a va�
riety of different purposes. This is another reason why the clearinghouse
mechanism is most attractive in relation to specific uses of particular
categories of invention. Fifth, pricing of copyright works licensed by a
collecting society involves the pricing of substitutes and raises none of
the complexities of pricing complementarities considered earlier. And
the list goes on.

10.4 Conclusion
None of this is to suggest that there are not lessons to be learned from
the copyright collecting societies. The way in which the copyright
tribunals complement the work of the competition authorities is, for

8
╇ The term is often attributed to the case Davoll v. Brown 7 Cas 197 (1845) at 199,
though Sherman and Bently cite other contemporaneous uses, B. Sherman and
L.€ Bently, The Making of Modern Intellectual Property Law, Cambridge: CUP, 1999
at 95 fn 1.
168 Michael Spence

example, very interesting. But it is to suggest that there are real diffi-
culties in translating the copyright experience into the realm of patent.
Van Zimmeren’s paper surveys the range of available clearinghouse
mechanisms and explores ways that may be immediately achievable
for reducing some transaction costs. None of what I have said should
cast doubt on the desirability of clearinghouses that merely facilitate
access. But it is important to recognise that doing so does not entirely
solve potential problems of patent thickets and the anticommons. And
I am more cautious than van Zimmeren seems to be, not only on the
achievability, but on the desirability, of clearinghouses that attempt to
do more.

R eferences
David, P. A. and Spence, M., Towards Institutional Infrastructures for
E-Science:€The Scope of the Challenge Oxford: Oxford Internet Institute
Research Report No. 2, 2003
National Research Council of the National Academies – Committee on
intellectual Property Rights in Genomic and Protein Research and
Innovation, Reaping the Benefits of Genomic and Proteomic Research:
Intellectual Property Rights, Innovation, and Public Health Washington:
NAP 2003
Sherman, B. and Bently, L., The Making of Modern Intellectual Property Law,
Cambridge: CUP, 1999, at 95 fn 1.
van Zimmeren, ‘Clearinghouse mechanisms in genetic diagnostics.
Conceptual framework’, Chapter 5 of this volume
Walsh, J. P., Arora, A. and Cohen, W.M., ‘Effects of Research Tool
Patents€and Licensing on Biomedical Innovation’, in Cohen, W.M. and
Merrill,€S.A. (eds.), Patents in the Knowledge-Based Economy, Washington:
NAP 2001
Part III

Open source models

12 Open source genetics
Conceptual framework

Janet Hope

12.1 Introduction
Intellectual property (IP) rights are most often thought of as regulatory
tools employed by the state to facilitate bargaining and induce invest-
ment in the risky but socially valuable process of innovation. However,
they can also be regarded as private regulatory tools that enable their
owners to order markets by fixing prices and controlling the availabil-
ity of protected goods and services. The strategic use of patents and
other IP rights to discipline international markets was foreshadowed by
free market economists more than a century ago, and has since been
dubbed the ‘knowledge game’.1
It is well established that IP rights can serve the public interest only if
they strike an appropriate balance between upstream and downstream
innovation. In the context of gene patenting, for example, the ‘tragedy
of the anticommons’ is a familiar concept.2 But the knowledge game is
not predicated on a careful balance between the interests of initial and
follow-on innovators. Rather, it depends on uniformly high standards
of IP protection. The political history of international IP standard set-
ting at the GATT Uruguay Round and beyond shows that the concen-
trated interests of elite knowledge game players are more than a match
for the diffuse interests of those who engage in and benefit from down-
stream innovation. The outcome is a global IP ratchet in which min-
imum standards of protection are gradually pushed higher and higher,
with little scope for downward adjustment.3
In light of this political reality, there is a need to study how private
contracting can help mitigate the potentially adverse effects of broad

1
╇ Drahos, P., and J. Braithwaite, ‘Chapter 3: The Knowledge Game’, in Information
Feudalism: Who Owns the Knowledge Economy?, London, Earthscan, 2002, 39–60.
2
╇ Heller, M. A. and R. S. Eisenberg, ‘Can Patents Deter Innovation? The Anticommons
in Biomedical Research’, 280 Science, 1 May 1998, 698–701.
3
╇ Drahos, P., ‘Global Property Rights in Information: the story of TRIPS at the GATT’,
13 Prometheus, 1995, 6–19.

171
172 Janet Hope

patents on early-stage genetic inventions.4 The formation of contract-

based institutions such as patent pools, IP clearinghouses and open
source licensing need not wait for domestic or international law reform.
Similarly, while states may promote or facilitate such institutions, their
existence does not depend on top-down interventions by state regula-
tors. Private transaction-cost-lowering institutions have the advantage
of being far more responsive to varied and dynamic local conditions
than the relatively slow-moving, broad-brush instruments available to
state actors. Further, active engagement in the design of cooperative
solutions helps generate commitment to the resulting institutions on
the part of industry participants and can lead to establishment of new
channels of communication that enhance overall information flow. The
success of such institutions in fields other than human genetics sug-
gests that the use of IP rights as private regulatory tools is not limited
to restricting competition and crushing or co-opting potentially disrup-
tive innovation. It can also serve the opposite goal – that of enhancing
broad access to knowledge, including the capability to use that know-
ledge in pursuit of a multiplicity of economically and socially beneficial
activities.
Institutions designed to overcome the high costs of contracting for
knowledge in a complex IP landscape may take an enormous variety of
different forms. An underlying premise of this edited collection is that
it makes sense to talk about diverse institutional forms as variations
on a finite set of themes (patent pools, IP clearinghouses and so on).
Despite the difficulties of working out a sensible taxonomy, this is a fair
assumption because modelling – the translation or adaptation of solu-
tions from one setting to another – has been shown to be a key driver
of institutional innovation across a broad range of regulatory contexts.5
Instead of designing new institutions from scratch, people tend to draw
on ideas that are already out there, modifying them only to the extent
necessary to suit their own projects and purposes. By floating a num-
ber of conceptually distinct models that differ from conventional or
mainstream IP management, the contributors to this book are engaging
in what John Braithwaite has called ‘model mongering’.6 Empirically,

4
╇ For a discussion of the role of private institutions in overcoming IP-related transaction
costs, see Merges, R.P, ‘Intellectual property rights and the new institutional econom-
ics’, 53(6) Vanderbilt Law Review, 2000, 1857–77 (Symposium: ‘Taking Stock: The
Law and Economics of Intellectual Property Rights’).
5
╇ Braithwaite, J., and P. Drahos, Global Business Regulation, Cambridge, Cambridge
University Press, 2000.
6
╇ Braithwaite, J., ‘A sociology of modelling and the politics of empowerment’, 45 British
Journal of Sociology, 1994, 445–78.
 Open source genetics: conceptual framework 173

model mongering plays an influential role in the modelling process,

and hence in institutional innovation overall.7
The institutional form modelled here is that of ‘open source’. Open
source is an approach to technology development, IP licensing and
commercialisation that has emerged within the software industry
in response to conditions that parallel those now found in human
genetics – namely, proliferating IP rights leading to restrictions on
�freedom of use and freedom to operate. The application of this model
outside software has so far been mostly, though not �exclusively, the-
oretical. In consequence, the modelling of open source in the con-
text of life sciences research and development is perhaps not as
advanced as the modelling of institutional forms with a longer his-
tory and a broader range of previous applications. Nevertheless, in
recent years there has been an unmistakable groundswell of interest in
open source biotechnology, and the modelling process is gathering
momentum.
The chapter is structured as follows. First, the open source phe-
nomenon is introduced in its original context of software development.
Second, the essential elements of the open source model are identi-
fied in general terms that can be applied outside that context. Third,
the chapter addresses a question that is consistently uppermost in the
minds of people learning about the open source model for the first time:
where does the money come from that would be needed to fund open
source research and development in relation to genetic technologies?
The chapter closes with some thoughts about how the real-world initia-
tives canvassed in other contributions to this book might fit into the
conceptual framework presented here.

12.2 What is open source software?

In the early days of computer programming, most users wrote their
own programs and exchanged source code (the form of software code
that can be read and understood by human beings) according to the
etiquette of a community made up of scientists and engineers employed
in academic and corporate laboratories. As in the life sciences during
the same period, there were few proprietary restrictions on �sharing.
Under these conditions there grew up a self-conscious community of
Â�‘hackers’€ – people who loved programming and enjoyed being good
at it – to whom the unfettered exchange of technical information

7
╇ Braithwaite and Drahos, Global Business Regulation, 585–601.
174 Janet Hope

�
represented both a fundamental necessity of professional creativity and
the lifeblood of personal relationships.8
In the 1970s and early 1980s, things began to change. At the same
time as life sciences research was undergoing its own transformation€–
marked in the US by the decision in Diamond v. Chakrabarty, the
passage of the Bayh-Dole Act and the establishment of the Court of
Appeals for the Federal Circuit – companies dedicated to producing
proprietary software began to appear, triggering a diaspora of the best
�programmers from university laboratories and other public sector insti-
tutions. For the first time, restrictions were imposed on the sharing
of source code. The result was a palpable loss of community among
hackers.9
One who felt this loss most keenly was Richard Stallman, a member of
the MIT Artificial Intelligence (AI) Laboratory. By Steven Levy’s well-
known account, Stallman went into deep mourning for the destruction
of his beloved AI lab as it had once been, even to the point of telling
people his wife had died and leaving them to discover for themselves
that he was referring to the old lab culture instead of a real woman.10 As
he came to terms with his grief, Stallman determined to find a way of
recreating the possibility for hackers to share source code across organ-
isational boundaries.
The plan he eventually hit upon was the development of a suite of
‘free’ software. The word ‘free’ did not refer to price; rather, Stallman
meant that software users should be at liberty to run a program for any
purpose, to study how it works and adapt it to specific needs and to
redistribute copies, as well as being free to improve the program and
release those improvements. In other words, the software was to be
‘“free” as in “free speech”, not as in “free beer”â•›’.11 The obvious starting
point for this scheme was to create a free operating system. An oper-
ating system is the core computer program that tells other programs
what to do; without it a computer cannot run. A free operating system
would establish a platform on which other free software could be con-
structed€– the foundation stone of a rebuilt community.
Stallman called the operating system project ‘GNU’, or ‘Gnu’s Not
U NIX’. The name was an allusion to the UNIX operating system, which
existed in many incompatible proprietary versions and had become
a symbol of the inefficiencies associated with proprietary restrictions

8
╇ For a classic description of the hacker community, see Levy, S., Hackers: Heroes of the
computer revolution, New York, Penguin, 2001.
9
╇ Ibid. 10
╇ Ibid., p.425.
11
╇ See the Free Software Foundation web site, www.fsf.org.
 Open source genetics: conceptual framework 175

on code-sharing. The GNU Project was launched in 1984, accom-

panied by the ‘GNU Manifesto’, a statement of purpose addressed to
fellow programmers requesting their participation and support.12 The
Free Software Foundation (FSF), principal organisational sponsor of
the GNU Project, was established the following year to promote the
broader development and use of free software.13
One challenge to the success of the FSF’s mission was the possibil-
ity that free software would be incorporated into proprietary (that is,
non-free) applications. Of course, this would not prevent anyone from
using the free version, but it would mean that contributors to the devel-
opment of free software would have no guarantee of ongoing access to
state-of-the-art technology – and would therefore be less likely to con-
tribute in the first place. To overcome this incentive problem, Stallman
devised an ingenious twist on the proprietary approach to software
licensing. To appreciate his idea, it is helpful to first consider the pro-
prietary approach.
Historically, software source code was not regarded as patentable sub-
ject matter, instead being protected under copyright law as an original
work of authorship and as a trade secret. Vendors of proprietary software
typically use both types of protection to stop competitors from imitating
their products. The buyer of a proprietary software program – technically
a licensee – generally receives only the binary or machine code version
of the program; the source code is kept secret. Making modifications to
a computer program, or using parts of the program code in another pro-
gram, is very difficult unless a programmer has access to the source code.
But even with such access, he or she would still be legally constrained by
the terms of the copyright licence agreement. Under a typical proprietary
software licence, the licensor retains the exclusive right to redistribute or
modify the program and authorises the making of only a limited number
of copies. Most licences also contain explicit restrictions on the number
of users, the number of computers on which the program may be run and
the making and simultaneous use of backups.14
Stallman’s grand idea was to create a licence that would emphasise
the rights of software users instead of software owners. He called this
type of licence ‘copyleft’ because it had the opposite effects to those of a
conventional copyright licence. (The copyleft symbol – a mirror image
of the familiar circled ‘c’ of copyright – is often seen accompanied

12
╇ A copy of the GNU Manifesto is available at www.gnu.org/gnu/manifesto.html.
13
╇ Free Software Foundation website, www.fsf.org.
14
╇���������������������������������������������������������������������������������� von Krogh, G., and E. von Hippel, ‘Special issue on open source software develop-
ment’, 32(7) Research Policy, 2003, 1149–57.
176 Janet Hope

by the caption ‘all rights reversed’, a play on the copyright slogan ‘all
rights reserved’.) With guidance from Eben Moglen, now a law profes-
sor at Columbia University and pro bono General Counsel for the FSF,
Stallman drafted the archetypal copyleft licence – the GPL or ‘GNU
Public License’, later renamed the ‘General Public License’.15
Under the terms of the GPL, the copyright owner grants the user the
right to use the licensed program, to study its source code, to modify it,
and to distribute modified or unmodified versions to others, all with-
out obligation to the owner. The only catch is that if the user chooses to
distribute any modified versions, he or she must do so under these same
terms. It is this final proviso that makes the GPL a copyleft licence, giv-
ing it its famous (or infamous) ‘viral’ character.
Part of the reason the GPL has gone such a long way to achieving
its goal of creating a collection of usable code that grows over time as
users contribute improvements back to the common pool is that it is a
template licence. In other words, it can be applied by any programmer
to his or her own code. In 1991, Linus Torvalds did just that when he
released Linux, an operating system kernel built using tools made avail-
able by the FSF, to a usenet newsgroup. The first release of Linux was
barely usable: according to Torvalds, it was ‘a program for hackers by
a hacker. I’ve enjoyed doing it, and somebody might enjoy looking at
it and even modifying it for their own needs.’16 But by the end of that
year, close to one hundred people had joined the newsgroup, many of
them active contributors to Linux’s further development. By the end of
the decade, GNU/Linux (that is, the Linux kernel together with other
operating system elements supplied by the GNU project) was a major
technological and market phenomenon, built from the voluntary con-
tributions of thousands of developers around the world.17
Since then, Linux has become the flagship for an entire techno-
Â�social movement. Though based on ‘free’ software, this phenomenon
is now generally referred to by a different term: ‘open source’. Stallman
wanted his fellow programmers to look beyond short-term expediency
in their choice of programming tools, to see that the use of proprietary
software raised serious ethical issues and to commit to providing and
using an ethically acceptable alternative. To make his point he employed

15
╇ References in this paper to the ‘GPL’ are to version 2. Version 3 is currently in draft
form.
16
╇ Torvalds, L., ¡torvalds@klaava.Helsinki.FI¿ Free minix-like kernel sources for
386-AT Article ¡1991Oct5.054106.4647@klaava.Helsinki.FI¿ in Usenet newsgroup
comp.os.minix, 5 May 1991.
17
╇ Weber, S., The Success of Open Source, Cambridge, Mass., Harvard University Press,
2004.
 Open source genetics: conceptual framework 177

the language of rights and freedom. But by the late 1990s, those who
coined the term ‘open source’ wanted to see non-proprietary software
more widely adopted, including in commercial settings, and they con-
sidered the language of freedom to be both confusing and unneces-
sarily alienating to businesspeople. In 1998, they established the Open
Source Initiative as a certification body for open source licences and
to advocate for the use and development of open source software as a
mainstream commercial strategy.18
Whether as a result of this advocacy or because of deeper economic
trends, both public and private sectors have embraced the use of open
source software in a variety of forms. Open source software has pene-
trated government at all levels in countries around the world and is used
for major enterprise applications by small businesses through to large
corporations. Open source development is financially supported by sev-
eral well-known companies, including IBM, and has been denounced
by Microsoft as a serious competitive threat.19 There are over one hun-
dred thousand open source software development projects in existence,
supporting a wide range of commonly used open source applications,
many of which are crucial to the functioning of the Internet.20 In the
words of political economist Steven Weber, open source software is no
marginal phenomenon, but a major part of the mainstream information
technology economy – one that increasingly dominates those aspects
that are becoming the leading edge in both market and technological
terms.21 It seems natural, then, to ask: could open source do for human
genetics what it has done for software?

12.3. A generalised model of open source for

the life sciences?
To provide a realistic answer to that question, it is necessary to come to
grips with all of the technical, legal and economic differences between

18
╇ Perens, B., ‘The Open Source Definition’, in C. DiBona, C. S. Ockman, and M.€Stone
(eds.), Open Sources: Voices from the Open Source Revolution, O’Reilly, Online version,
1999, 1–11.
19
╇ V. Valloppillil, ‘Open source software: A (new?) development methodology,’ annotated
version available on the Open Source Initiative website as ‘Halloween Document 1
(Version 1.14)’, 31 October–1 November, 1998, at www.catb.org/~esr/halloween/Â�
halloween1.html.
20
╇������������������������������������������������������������������������������������The Sourceforge.net count of registered projects and users gives a first approxima-
tion of the size of the open source developer community: see http://sourceforge.net/.
Open source software programs that help run the Internet includes Apache, Linux,
FreeBSD and BIND.
21
╇ Weber, Success, 5.
178 Janet Hope

the two fields.22 Software code itself is quite different from any given
genetic technology; moreover, the capital costs of development tend
to be lower, the prevailing industry culture is generally thought to be
less proprietary, and innovations are typically protected using different
sets of exclusive rights. These and other differences need not �constitute
insurmountable obstacles to the translation of open source software
principles into the life sciences. However, they do warrant detailed anal�
ysis. To conduct such an analysis – in other words, to decide which dif-
ferences matter and which don’t – it is necessary to construct a model of
open source that distinguishes between features that are essential to its
success and those that are merely incidental. Features that are essential
must be preserved or translated to the new setting, while those that are
incidental can be more freely adapted or even abandoned.
In software industry usage, the phrase ‘open source’ has several lay-
ers of meaning. It simultaneously denotes a defined set of licensing
�criteria, a somewhat more loosely defined development methodology
and a largely undefined yet characteristic approach to commercial
exploitation of technological innovations. Of these, licensing is funda-
mental: open source exploitation strategies rely on open-source-style
collaborative technology development, which in turn relies on open
source licences both as legal instruments and as embodiments of a
social covenant.
What is the key to open source licensing? In the software context,
the Open Source Initiative must certify software as ‘open source’ if it is
licensed on terms that conform to the official Open Source Definition
(OSD). The OSD itself is too long to reproduce here (the latest ver-
sion is available on the Open Source Initiative website)23. However, an
accepted summary is that a licence is open source if it allows anyone,
anywhere, for any purpose, to copy, modify and distribute the �software
(where distribution takes place either for free or for a fee) without having
to pay royalties to the copyright owner.24 Note that there is no mention
either in this summary or in the OSD itself of a copyleft-style obliga-
tion to make improvements available to other users. This is because a
licence can be open source without including any such requirement.
Copyleft licences, of which the GPL is just one example, are merely

22
╇ For an early discussion of these issues, see Burk, D., ‘Open Source Genomics’, 8
Boston University Journal of Science and Technology Law (Symposium on Bioinformatics
and Intellectual Property Law, 27 April 2001, Boston, Mass.), 2002, 254.
23
╇ Open Source Definition Version 1.9, online at www.opensource.org/docs/definition.
php.
24
╇ Rosen, L., Open Source Licensing: Software Freedom and Intellectual Property Law,
New€Jersey, Prentice Hall, 2004.
 Open source genetics: conceptual framework 179

a subset of the overall class of open source licences, though they are
among the best known and most widely used.
Of course, most genetic technologies are protected not by copyright
but by a mixture of IP and other property and quasi-proprietary rights,
patents being the most important. The technologies themselves are also
more diverse than software programs with respect to both their mater-
ial forms and the mix of tacit and codified information they incorpor-
ate. A faithful translation of open source licensing principles into the
sphere of human genetics therefore requires more than a ‘cut, paste and
edit’ from existing open source licences. Instead, it requires those who
draft biotechnology licences to grasp the underlying policy objectives of
the open source approach.
Three key objectives of open source licensing are (1) credible com-
mitment, (2) competition and, optionally, (3) copyleft. All three fea-
tures are designed to encourage follow-on innovators to contribute to
cumulative development of open source technologies.

Credible commitment
Credible commitment essentially means that to be open source, a tech-
nology must be protected by IP or other proprietary rights and dis-
tributed on terms that are at least perceived to be legally enforceable.
A technology that is made available under the open source model is
not in the public domain, which has been described as a ‘rough neigh-
bourhood’ where well-meaning scientists may get ‘mugged’ (i.e. have
their inventions appropriated by others who have anticipated their work
in a broad patent claim or who make improvements that the patent
office, though not necessarily the scientific community, regards as
patentable).25 Rather, it is owned by the licensor, who makes a legally
enforceable promise via the licence agreement not to interfere with
others’ freedom to use, improve or circulate the technology. The point
is to assure potential users that their investment of time and resources
in adopting the technology and making improvements to it will not be
turned against them in a later ‘IP ambush’. Without such assurance,
potential users may be reluctant to invest in freely revealed technolo-
gies or contribute to further development, leading to poor uptake and/
or unfulfilled downstream potential. The licence protects the licen-
see from the licensor, and the existence of a legally recognised prop-
erty right protects both from third parties. This last point is important

25
╇�������������������������������������������������������������������������������������Jefferson, R., ‘The BiOS Initiative biological open source as a new innovation para-
digm’, Public Seminar, CSIRO Black Mountain, 17 May 2006.
180 Janet Hope

because an IP ambush need not come from the person who initially
offers a new technology to users. For example, in the diagnostics con-
text, a clinical researcher may develop a test and make it freely available
to others without knowing that the relevant gene sequence is subject to
patent rights. When the patent issues and is enforced, both the scientist
and his or her colleagues may find themselves subjected to demands for
licence fees or restrictions on administering the test.

Competition
Competition is the second key feature of open source licensing. In this
context, competition refers to a level playing field between the licensor
and other users or distributors of open source technologies with respect
to the legal freedom to use and commercialise both the technology itself
and any downstream innovations. (The sole permissible qualification
to this statement regarding downstream innovations relates to copyleft
licensing, discussed below.) An open source licence may not impose
field-of-use or territorial restrictions, commonly used in proprietary
licensing to protect the IP owner or other licensees from competition
in a particular market segment. For example, a biotechnology licence
granted ‘for research and non-commercial use only’ might be helpful to
some researchers, but it would not be open source. Similarly, an open
source licence may not impose a requirement to report to the licensor,
or to disclose the means and manner of any internal use of the licensed
technology. (In copyleft licences, it is external deployment, not internal
use, which triggers the copyleft obligation to disclose source code.) An
open source licence may not restrict the number of products a licen-
see is allowed to distribute, the identity or geographic location of the
recipients, or the price the licensee asks them to pay – which may be
anywhere from zero to the highest price the market will bear. The same
goes for improvements or other downstream uses, with the qualifica-
tion that under a copyleft licence, the licensee may be constrained to
deal with others as he or she has been dealt with by the licensor. Any
person to whom the technology is distributed may in turn become a
licensee and exercise the same rights of distribution. As Steven Weber
has remarked, open source licensing is based on IP, but it is a concept of
property configured around the right to distribute, not to exclude.26
Seeing competition as central to open source licensing clarifies
aspects of the model that might otherwise seem confusing, such as the
common description of open source licences as ‘royalty-free’. Open

╇ Weber, Success, 86.

26
 Open source genetics: conceptual framework 181

source licensees must be free to use and distribute open source tech-
nologies or downstream innovations without payment of royalties to a
licensor. This does not mean that a licensor cannot sell an open source
technology or a product made using an open source process: commer-
cial distributors of open source software routinely sell copies of their
own software, together with open source software they have licensed
from others, to paying customers. However, an open source licensing
scheme ensures that anyone can become a licensee and every licensee
is a potential distributor, so market pressure keeps prices down. In the
software context, where commercial distributors must compete with
distributors who charge nothing at all for access to the same technology,
prices are likely to be lower than in biotechnology, where higher overall
costs may mean fewer licensees are willing or able to offer �gratuitous
access to a second tier of users. Even a substantial fee may be perfectly
compatible with open source principles, provided it is a one-off. What
matters is that the fee structure must not create a continuing obliga-
tion that even in theory could give the licensor indirect control over the
licensee’s subsequent use or distribution of the technology.
The importance of free competition between open source licensors
and licensees explains why the freedom to create a new branch of a
collaborative development project, known in software as a ‘code fork’,
is often regarded as the defining characteristic of open source. Under
the terms of an open source licence, anyone who is dissatisfied with the
conduct of a project leader – on technical, administrative, political or
even purely personal grounds – is free to take the collaborative effort in
a new direction. In practice, forking is rare, largely because the benefits
are usually not worth the hassle and uncertainty of persuading others to
join a new branch of the project. For example, where there are technical
differences it is often easier to continue contributing to the main project
and simply devote a few extra resources to tweaking the results to meet
one’s own needs. But the ever-present possibility of a fork makes project
leaders responsible to their co-developers and ensures that no individ-
ual or group unduly dominates the process of technology development.
Conversely, there is no danger that a potentially useful tool will be left
on the shelf simply because of the waning interest or incapacity of an
initial innovator.
In fact, open source project leaders do have considerable power to
dictate the terms of collaboration, for example by excluding contribu-
tions that do not conform to their own vision for the outcome of the
collaborative effort. It is also often the case that project leaders happen
to be the initial innovators with respect to a given technology; a com-
mon practice is for an innovator to seed an open source development
182 Janet Hope

project with his or her own IP, as Linus Torvalds did with Linux, and
as CAMBIA has tried to do with its BiOS initiative, described else-
where in this collection. All else being equal, it is natural for an initial
�innovator to remain in charge of ongoing development and to act as a
champion of the technology. However, it is absolutely key to the open
source approach that the initial innovator not use his or her owner-
ship of the IP in that seed technology to retain control over its ongoing
development or to insist on special rights such as obtaining a sneak pre-
view of new contributions. Thus, an open source project leader’s power
is subject to the continuing confidence of other contributors, which
may be withdrawn at any time, for any reason.

Copyleft
The final key aspect of open source licensing is copyleft, also sometimes
known as ‘reciprocity’. We have seen that copyleft licences impose an
obligation on the licensee to make any downstream innovations that
it chooses to distribute beyond the boundaries of its own organisation
available under the same terms as the original technology. Such licences
are also known as ‘reciprocal’ licences – a more general term intended
to highlight the fact that in the context of cumulative technology devel-
opment, open source licensors and licensees are likely to find them-
selves at different times on different sides of the same licence terms.27
Unlike credible commitment and competition, reciprocity in this sense
is a feature of some open source licences, but not all. An example of a
non-reciprocal open source software licence is the Berkeley Software
Distribution (BSD) Licence, which grants freedom to use and distrib-
ute the licensed technology subject only to a requirement that the licen-
see respect the author’s moral right of attribution.
In the life sciences context, reciprocal open source licence terms have
been likened to reach-through and grant-back provisions in proprietary
patent licences, and it has been suggested that they may raise similar
competition concerns.28 However, this anxiety is unfounded because
the analogy between such proprietary terms and copyleft (or patent-
left) terms breaks down at the very point where conventional reach-
throughs and grant backs become suspect. Consistent with the level
playing field described above, an open source licensor gains no special

╇ Rosen, Open Source Licensing, 103ff.

27

╇ See Feldman, R. C., ‘The Open Source Biotechnology Movement: Is it Patent
28

Misuse?’, 6 Minnesota Journal of Law, Science and Technology, 2004; Boettiger, S. and
D. L. Burk, ‘Open Source Patenting’, 1 Journal of International Biotechnology Law,
2004, 221–231.
 Open source genetics: conceptual framework 183

privilege in relation to downstream technologies distributed in accord-

ance with an open source reciprocity requirement. The licensor may
expect to benefit directly or indirectly from access to and freedom to
operate with such technologies, but he or she does so only as a member
of the public who is entitled to take a licence to the improvement on the
same terms as anyone else. Open source reciprocity is not tit for tat;
rather, it is a diffuse form of reciprocity of the kind known colloquially
as ‘passing it forward’.
It follows that any biotechnology licence that claims to be a recip-
rocal open source licence must not seek to retain any special privilege
for the licensor in relation to improvements or other modifications to
the original technology. Further, an open source licensor is prohibited
from imposing conditions on the distribution of downstream technolo-
gies that would privilege a particular group, for example, licensees of
the original technology. In this regard, open source licensing may allow
fewer restrictions than would be permissible under competition law.
For example, non-exclusive grant backs of licensee improvements are
well known in conventional biotechnology licensing, and are commonly
used to establish a club atmosphere that encourages cross-fertilisation
of improvements among licensor and licensees so that a basic technol-
ogy can continue to provide commercial advantage from which all par-
ties benefit. In such a scheme, the original licence is non-exclusive;
each licensee grants the licensor a non-exclusive, royalty-free right in
any improvement developed by the licensee, together with the right to
sublicense the improvement to other licensees of the same technology.
The licensor circulates such improvements among all licensees on a
royalty-free basis, with ownership in each improvement being retained
by the party developing the technology. Such arrangements are gener-
ally considered harmless by competition authorities, and may even be
favourable to innovation overall. But they are not open source.

In summary
‘Credible commitment’ is about providing potential follow-on
�innovators with legally enforceable rights so they will have the confi-
dence to invest in the initial technology and incorporate it into new
developments. ‘Competition’ is about what hackers call ‘software free-
dom’, which in the present context might be thought of as ‘technology
freedom’ or ‘gene freedom’: the right to use the technology, improve
on it, and sell or otherwise distribute either the initial innovation or
one’s own improvements without incurring any ongoing obligation to
the technology owner. Finally, ‘copyleft’ licences seek to extend these
184 Janet Hope

rights beyond the initial technology to follow-on innovations. A licen-

see who accepts a copyleft licence forgoes the usual right of exclud-
ing others from using any IP-protected improvements he or she might
choose to distribute, but in return gains an assurance that he or she will
have access to developments contributed by others.

12.4 Free revealing, or where does the money come from?

To this point, open source has been described as an approach to IP
licensing that is designed to facilitate cumulative technology develop-
ment by removing IP-related barriers to access and freedom to �operate.
From a social welfare perspective, the advantages of an open source
approach are obvious. It is less obvious why a self-interested actor,
such as a private biotechnology firm or public sector �organisation
that is expected to pay its own way, should be prepared to make the
�products of its R&D investments available to all-comers on such
�apparently altruistic terms. What is the economic basis of the open
source model?
Open source business strategies often seem unworkable to patent law-
yers and others whose professional lives have been devoted to playing
the knowledge game, because the underlying assumption of the game
is that any uncompensated spillover of proprietary knowledge devel-
oped by private investment must reduce an innovator’s overall profits.
This assumption implies that rational profit-seeking actors should not
engage in ‘free revealing’ – that is, the voluntary disclosure of valu-
able technical information without direct compensation. In fact, how-
ever, many innovators do engage in free revealing; some even spend
significant money and time to ensure that their innovations are seen in
a favourable light, and that information about them is effectively and
widely diffused.
While open source software licensing is perhaps the best known
example of such active efforts to freely reveal proprietary information,
routine, intentional free revealing has also been observed in a wide
range of other commercial settings. Scholars in the field of innovation
management have documented free revealing in relation to the devel-
opment of methods for processing iron ore and pumping water out of
mines in nineteenth-century Britain, the design of semiconductors
and �automated clinical chemistry analysers, the design of lithographic
equipment and sporting goods such as mountain bikes and kitesurf-
ers.29 Free revealing among profit-seeking firms in industries where

╇ Von Hippel, E., Democratizing Innovation, Boston, MIT Press, 2005.
29
 Open source genetics: conceptual framework 185

R&D is far more capital-intensive than it is in software development

suggests that there are positive private rewards to be obtained from free
revealing.
As noted earlier, open source licensing promotes innovation by making
new technologies available on terms that allow users to make changes to
the technology and to use or distribute the resulting modified versions
or the technology itself as they see fit. This free revealing on the part
of the technology owner enhances the value of the technology to users.
Commercial exploitation of open source technologies involves the con-
version of that enhanced value into private economic benefit.
How does free revealing on the part of a technology owner help to
maximise its value to users? Open source tools are often technically
superior because the development process is open to a diverse range
of creative inputs and enables ‘learning by doing’ so that outputs are
subject to more rigorous quality testing. Open source technologies are
often cheaper and more accessible than proprietary tools because of
the ‘competition’ aspect of open source licensing. They bring free-
dom from dependence on individual suppliers: something that large
pharmaceutical companies, in particular, regard as advantageous.
They can be adapted to suit the users’ own needs and incorporated into
other �products without the need for time-consuming and unpredictable
negotiations with the IP owner. All of these qualities are a direct conse-
quence of the characteristics of open source licences.
Assuming that an open source approach enhances the attractiveness
of a technology to users by improving its user-friendliness, quality,
affordability or availability, how can these features be exploited for profit
without restricting access to or freedom to operate with the underlying
IP? The answer depends on the role that the technology plays in a licen-
sor’s overall business model. A licensor’s relationship to the technology
may be primarily that of a user, manufacturer, distributor, supplier of
upstream inputs, or seller of complementary goods or services, or it may
be a mixture of these. The decision to employ an open source exploit-
ation strategy with respect to a particular technology may entail a shift
in this relationship, for example from manufacturer to seller of comple-
mentary goods; but note that it does not imply that all of the technolo-
gies owned by that licensor must be open source.
Consider first the position of user-owners. Companies or other
�institutions (such as universities and public or private non-profit
research institutions) that use a particular research tool as a core com-
ponent of their business process or research programme can benefit
directly from any improvement in the use value of the tool, for example
through costs savings, efficiency gains or reduced R&D risk. For
186 Janet Hope

example, a firm that conducts in-house gene sequencing as part of its

overall R&D effort would benefit from improvements to sequencing
technology. Pharmaceutical firms could benefit from improvements
in chemical libraries, molecular synthesis techniques, protein assays,
instrumentation for high-throughput measurement of biological assays,
or data sets and analysis methods for predicting toxicological and other
properties of selected molecules.
Clearly, this particular application of open source as a commercial
exploitation strategy is only suited to fundamental enabling technolo-
gies that are not a source of competitive advantage for the companies
involved. You’re not going to find pharmaceutical companies releasing
their latest blockbusters under open source licences. But there might
be a place for open source where it complements proprietary business
models by reducing costs, risks and product development time. Rather
than open sourcing tools that are developed in-house, a big company
might prefer to support open source development by universities and
smaller firms. The SNP Consortium, while not an example of open
source per se, was a concrete example of the same type of business logic
at work in the pharmaceutical industry. To quote from the Consortium
website, ‘A high-quality, high-density SNP map is a research tool that
will benefit everyone involved in genomic research. By collaborating,
the members of the SNP Consortium will be able to create a commonly
accepted SNP map more quickly, and with shared financial risk and
less duplication of effort than if each company proceeded on its own.’
As for smaller firms, many biotechnology firms take a strongly
�proprietary approach to their IP on the basis that downstream users
require a guarantee of exclusivity, but this need not always be the case.
If the opportunity is big enough and the risk low enough, it may make
business sense for downstream users to adopt and support an upstream
technology that is not subject to IP rights. For example, as Arti Rai and
her co-authors have pointed out, in the 1950s pharmaceutical compan-
ies were quite happy to take on drug development for the polio vaccine
even though it was unpatented.30
It might be thought that the exclusive proprietary approach exem-
plified by the knowledge game has become too entrenched for a
�non-proprietary approach to be viable today. However, this overlooks
the fact that the existence of an open source version of any given tech-
nology might sometimes be extremely useful as a competitive weapon.

╇ Rai, A., S. Maurer and A. Sali, ‘Finding Cures for Tropical Diseases: Is Open Source
30

an Answer?’ Public Library of Science: Medicine, 2004. See also Smith, J. S., Patenting
the Sun: Polio and the Salk Vaccine, New York, William Morrow & Co., 1990.
 Open source genetics: conceptual framework 187

In the world of conventional IP exploitation, one player’s R&D win is

another’s loss. In any given round of the knowledge game, the win-
ner probably won’t be interested in an open source approach. But the
losers€– who by definition outnumber the winners – may well be inter-
ested in supporting any new technological development that offers to
erode the winner’s competitive advantage. Open source offers a way to
achieve this that may be more practicable than the ideal outcome for a
profit-seeking firm, which is to become the new winner.
Of course, this calculation may also be made ex ante, and the insti-
tutional diversity of biotechnology industry participants means that
open source may be used as a competitive weapon by non-profit as
well as for-profit players. This dynamic was present in the case of the
SNP Consortium, where researchers and pharmaceutical companies
alike faced the threat that biotechnology firms would gain a propri-
etary stranglehold over a non-substitutable technical standard, and
responded by working together to eliminate that possibility by placing
the data in the public domain.
The benefits of an open source exploitation strategy for non-
�commercial players are discussed further below; but first, what about
technology owners for whom the technology is valuable primarily as a
product rather than a tool? How can they convert the improvements
that might be gained by turning the technology over to a group of open
source developers into profit for themselves?
One possibility is to leverage the improved use value of an open
source technology to enhance the appeal of a complementary product.
So, for example, a company like IBM that is primarily in business to sell
hardware might distribute enabling software such as driver and inter-
face code at no charge along with the hardware; the hardware is more
valuable the better the data and the better the tools for manipulating
the data. In biotechnology, the hardware could be a sequencer and the
data analysis software might be open source. A non-software example
would be if a manufacturer of microarray readers were to give away
instructions for spotting microarrays in order to sell more readers: the
fact that the information would be freely available would mean that
overall use of arrays would increase.
Another possible income stream is the provision of services. In this
model the technology is distributed on an open source basis in order
to grow the market for the technology itself and associated offerings.
Revenue is generated by selling the technology in a form that is easier
or more convenient to use than the freely available version and by pro-
viding services such as training, consultancy, custom development, and
after-sales support or accessories such as user manuals. This strategy is
188 Janet Hope

well known in the software context, but it is actually more promising in

the biotechnology context because the tacit, uncodified nature of much
biotechnological information means that users of a technology may well
be prepared to pay a premium in order to avoid some of the trouble and
expense of optimising a published protocol.
A third possibility is to use an open source technology as a market
positioner. For example, an open source product may generate little or
no revenue, but could help to build the firm’s overall brand and repu-
tation, add value to conventional products, and increase the number
of technology developers and users that are familiar with and loyal to
the product line as a whole. Brand licensing and franchising are com-
mon business strategies that depend on good market positioning: in
the open source context, both involve charging a fee for the right to use
brand names and trademarks associated with technology that is itself
open source. If – in what is admittedly an unlikely move – Affymetrix
decided to open source its chip technology, an ‘Affymetrix Inside’ logo
might be a successful branding exercise, even if others were able to
make chips using Affymetrix technology.
How viable are all these strategies in real life? Interviews with par-
ticipants in the Australian biotechnology industry suggest that they are
perfectly viable under favourable conditions. For example, imagine a
small company built around a patented genotyping technology whose
main virtue relative to competing technologies is that it is cheaper to
use. The company makes its technology available on liberal �licensing
terms akin to those employed by open source software developers.
Instead of making money from licence fees, it offers genotyping �services
directly to plant breeders who work on particular crops. It also offers
consultancy services to anyone who wants to ‘port’ the technology to
new crops or other organisms. The licence terms leave the company
open to competition in both markets, but because the technology is at
an early stage of development, not many competitors have the know-
how to compete successfully. Offering services allows the company to
maintain that competitive edge by being on the spot as kinks are ironed
out through trial and error in new use environments. At the same time,
the company sells franchises to organisations in other parts of the world
that might want to operate a similar type of business. The natural
�geographical segmentation of the market for crop-specific agricultural
biotechnologies makes market segmentation using IP rights unneces-
sary. The key for this company is to serve small markets that are of no
interest to �larger players and in which a low-cost solution is attractive
despite drawbacks, such as lack of automation, which would be a prob-
lem in more industrialised settings.
 Open source genetics: conceptual framework 189

This example – hypothetical, but based on a real firm – is drawn

from agricultural biotechnology. But we could imagine a similar sce�
nario in human genetics; for example, where the technology in question
is a diagnostic test. This time, let us suppose that the initial innovator
works not for a private company but in the clinical laboratory of a non-
profit organisation, such as a university or a hospital, that offers tests
developed in-house on the basis of sequence information drawn from
genetic studies of patients and their families. Let us further suppose
that there are tens or hundreds of mutations associated with the rele-
vant disease and that the current form of the test detects only some
fraction of these, so that people whose test results are negative receive
only a partial assurance that they are unlikely to be affected by the
disease.
Clearly, the quality of the test – and hence the quality of the service
the lab provides to patients, their families and the broader commu-
nity – would be enhanced if it could be combined with tests developed
elsewhere for other mutations associated with the same disease. There
are also positive network effects to growing the user base in terms
of reliability and quality assurance. Thus, the greater the number of
laboratories that use the test and contribute to the creation of a more
comprehensive version, the better for all. The marginal cost of devel-
oping the test itself, given that our hypothetical institution is funded
to perform the underlying research in any case, is minimal. Further,
the implementation of a new diagnostic test does not require the devel-
oper to clear the kinds of regulatory hurdles that make pharmaceutical
development so capital-intensive. Thus, the argument that there would
be no incentive or capacity to develop or improve the test in the absence
of exclusive proprietary control or a high profit margin is not convin-
cing in this context.
In fact, given that most of those who develop diagnostic tests are non-
profit users rather than for-profit distributors, it’s reasonable to assume
that the net economic impact of a copyleft-style open source licence on
a partial test for a complex genetic disease would be positive. Given a
broad enough patent right on the initial licensed technology, a copyleft-
style approach would protect all users from having to pay licence fees
to subsequent developers in order to gain access to the most compre-
hensive version of the test. The only losers would be the few industry
participants whose business model relies on obtaining licensing revenue
from other test providers or charging monopoly rents. If it is considered
desirable to encourage private research and development activity in the
sector, such activity could be supported by the provision of services,
complementary goods such as test kits or other revenue streams that do
190 Janet Hope

not rely on controlling access to the test itself. The in-principle viability
of such alternative revenue streams may be verified by a glance at the
web page of any diagnostics company.
All of these observations point to the desirability and feasibility of
implementing a copyleft-style open source licence in relation to diag-
nostic tests based on gene patents. One factor that at first glance appears
to point the other way is the cost to the initial innovator of obtaining
patent protection – necessary in order to be able to make a ‘credible
commitment’ to other users, especially those who might contribute
to the evolution of a more comprehensive or otherwise improved test.
Patents are a much more expensive form of IP protection than copy-
right; a single patent costs in the order of USD 10,000, not including
maintenance and enforcement. Clearly, the total amount paid in licens-
ing fees to a submarine patent-holder by all users of a non-free technol-
ogy can easily exceed this cost, but there is a collective action problem
in inducing all those who would benefit from a copyleft-style patent
licence to contribute to patent and licensing expenses.
However, there are several reasons why the high cost of patents
�relative to copyright protection need not prevent the application of
the€open source model in areas like the life sciences where patents are
the prevalent form of IP protection. First, in some technology areas, the
open source business strategies described above may bring in sufficient
�revenue to cover patent costs; if this seems incredible, consider that
patent owners in some fields consider it profitable to grant royalty-free
patent licences in order to have their licensed technologies included in
industry standards. Second, recall that an open source licensor is in fact
permitted to charge licensees whatever the market will bear, provided
such a fee is a one-off. (In addition, there is no rule in open source
against ‘dual licensing’ – that is, offering the same technology under
both open source and proprietary licences.) Third, the open source
model may be combined with other models such as the IP clearing-
house or collecting society models discussed elsewhere in this book.
(Patent pooling is incompatible with the open source approach because
a patent pool has a limited membership.) Finally, the financial support
needed to cover patent costs might also be found among those who
have an interest in promoting innovation in the field as a whole or in
finding solutions to technological problems, as distinct from promoting
a particular technological solution. Such players may be found in the
public or private sectors, and they may or may not be profit-seeking.
Governments and government funding agencies, private charities and
disease-specific research foundations, patient subscriptions, insur-
ance companies or nationalised health care providers, industry R&D
 Open source genetics: conceptual framework 191

corporations, downstream users to whom solving a particular technical

problem represents an overhead rather than a potential competitive
advantage, all fall into this category.

12.5 From principles to practice: implementing an

open€source approach
This chapter has portrayed the prospects of translating the open source
model into human genetics in a positive light; but the process is unlikely
to be straightforward.
As an example, biotechnology licensing is inherently more complex
than software licensing, and innovators in this field will not have the
advantage enjoyed by their software counterparts of conducting their
early experiments in open source licensing under the corporate radar.
These considerations point to the necessity of enlisting lawyers and
other technology transfer experts in licence development. Similarly,
while in theory any IP owner can launch an open source project with-
out first consulting potential contributors as to the terms of the licence
agreement, in practice the project is much more likely to be a success if
the task of building a technological community is taken seriously from
the start – even before a licence is drawn up. In this context, there is a
role for institutions such as PIPRA and Science Commons in facilitat-
ing the establishment of open source initiatives as part of their broader
mission of promoting and supporting institutional innovation of the
kind canvassed in this collection.
What of the remaining case study represented here, CAMBIA’s BiOS
initiative? BiOS has garnered considerable publicity as the most thor-
oughly implemented open source initiative in the life sciences arena so
far. As such, it will no doubt be closely monitored by both proponents
and opponents of the open source model. The BiOS licences, while not
explicitly drafted as templates, may well be used for that purpose. It is
likely that open source biotechnology initiatives will at least look to the
BiOS example in designing their own institutional frameworks.
Yet the BiOS licences are not in fact open source by the analysis
presented above; that is to say, if the technology in question were soft-
ware, the Open Source Initiative would refuse to certify them and
open source purists would refuse to adopt them. The fundamental rea-
son is that the BiOS licences give the licensor too much control over
downstream development of the licensed IP and technology. There is
insufficient freedom to ‘fork the code’ – that is, to reject the licensor’s
leadership of the ongoing process of cumulative innovation. As noted
above, this freedom is the core principle around which the entire open
192 Janet Hope

source model is built, because without it, contributors to an open source

project risk becoming unpaid workers on someone else’s project instead
of free participants in a mutually beneficial collaboration.
This is not mere pedantry, but a question of institutional design – of
striking the right balance between owners and users. It may be that
the BiOS initiative succeeds despite depriving licensees of the rights
they could expect under a ‘truly’ open source licence. After all, there
are many other institutional forms besides open source: the fact that
a �particular initiative deviates from key elements of the original open
source design does not imply that it is doomed to failure or somehow
illegitimate. But unless those deviations are explicitly shown to be driven
by some generic technical, legal or commercial difference between soft-
ware and the life sciences, the success or failure of the BiOS initiative
should not be taken as a strong proof of the success or failure of the
translation of open source into the life sciences context.

12.6 Conclusion
This chapter has outlined the key features of the open source model
in terms that are sufficiently general to be applied outside software
in the context of human genetics research and development. It also
addresses one of the main concerns that arises in connection with
this translation – the question of where the money would come from
to support both technological innovation and IP-related costs under
an open source regime. Finally, it suggests that implementation of the
open source model in the context of human genetics, while feasible, is
likely to require considerable input from licensing experts and others
whose model mongering activities are carried on at a very practical
level.

R eferences
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International Biotechnology Law, 2004, 221–31.
Braithwaite, J., ‘A Sociology of Modelling and the Politics of Empowerment’,
45 British Journal of Sociology, 1994, 445–78.
Braithwaite, J., and P. Drahos, Global Business Regulation, Cambridge,
Cambridge University Press, 2000.
Burk, D., ‘Open Source Genomics’, 8 Boston University Journal of Science and
Technology Law (Symposium on Bioinformatics and Intellectual Property
Law, 27 April 2001, Boston, Mass.), 2002.
Drahos, P., ‘Global Property Rights in Information: the Story of TRIPS at
the GATT’, 13 Prometheus, 1995, 6–19.
 Open source genetics: conceptual framework 193

Drahos, P., and J. Braithwaite, ‘Chapter 3: The Knowledge Game’, in

Information Feudalism: Who Owns the Knowledge Economy?, London,
Earthscan, 2002, 39–60.
Feldman, R. C., ‘The Open Source Biotechnology Movement: Is it Patent
Misuse?’, 6 Minnesota Journal of Law, Science and Technology, 2004.
Heller, M. A., and R.â•›S. Eisenberg, ‘Can Patents Deter Innovation? The
Anticommons in Biomedical Research’, 280 Science, 1 May 1998,
698–701.
Levy, S., Hackers: Heroes of the computer revolution, New York, Penguin, 2001.
Merges, R.P, ‘Intellectual property rights and the new institutional
Â�economics’, 53(6) Vanderbilt Law Review, 2000, 1857–77 (Symposium:
‘Taking Stock: The Law and Economics of Intellectual Property
Rights’).
Perens, B., ‘The Open Source Definition’, in C. DiBona C.â•›S. Ockman and
M. Stone (eds.), Open Sources: Voices from the Open Source Revolution,
O’Reilly, Online version, 1999, 1–11.
Rai, A., S. Maurer and A. Sali, ‘Finding Cures for Tropical Diseases: Is Open
Source an Answer?’ 1 Public Library of Science: Medicine, 2004.
Rosen, L. (ed.), Open Source Licensing: Software Freedom and Intellectual
Property Law, New Jersey, Prentice Hall, 2004.
Smith, J.â•›S., Patenting the Sun: Polio and the Salk Vaccine, New York, William
Morrow & Co., 1990.
Von Hippel, E., Democratizing Innovation, Boston, MIT Press, 2005.
von Krogh, G., and E. von Hippel, ‘Special issue on open source software
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Press, 2004.
13 Case 8. CAMBIA’s Biological Open
Source€Initiative (BiOS)

Nele Berthels*

13.1 Introduction
CAMBIA is a private non-profit research institute unique in its kind.
Located in Canberra, Australia, CAMBIA is not only developing new life
science technologies, but also pioneering new business models driven by
its mission to increase fair access to the tools of innovation as a fundamen-
tal human right.1 Founded by molecular biologist and social entrepreneur
Richard Jefferson about fifteen years ago, CAMBIA has been applying
new practices both in life sciences and IP management to foster inno�
vation and collaboration throughout the developed and developing world.
The reason behind this mission is at least two-fold: humanitarian
and economical. The crushing reality that the world is faced with an
estimated four billion people living in extreme poverty, hints to struc-
tural problems at many levels.2 CAMBIA advocates sustainable and
equitable development through active participation of developing coun-
tries so that their needs can be addressed. A prerequisite is that the
working tools are made available and accessible to all.
Access to these tools in the field of life sciences seems to be increas-
ingly hampered by high levels of patenting, broad scope of patents and
restrictive licensing.3 All players in the field of innovation appear to
be affected. Even purely academic scientists experience the effect of
�licensing on new techniques and might not be immune from patent
infringement, although this has yet to emerge as a significant impedi-
ment to their activities.4 Moreover, concern is raised that inventions

*╇ This chapter was researched through interviews with Richard Jefferson.
1
╇ CAMBIA BiOS Initiative – Biological innovation for Open Society. Open Source,
Open Science, Open Society. Implementation phase 2006–2008. January 31, 2006.
Available at www.bios.net.
2
╇ CAMBIA BiOS Initiative – Biological innovation for Open Society.
3
╇ Editorial, ‘Open-source Biology’, 431 Nature, 2004, 491.
4
╇ Yancey, A., and Stewart, C.N., ‘Are University Researchers at Risk for Patent
Infringement?’, 25 Nat. Biotechnol., 2007, 1225–8. Centre for Intellectual Property
Policy (CIPP), ‘The Research or Experimental Use Exemption: a Comparative Analysis.’

194
 Case 8. The BiOS Initiative 195

from publicly funded research projects are increasingly being acquired

by private companies or licensed exclusively. Large companies tend to
spend enormously to acquire extended IP portfolios without necessar-
ily gaining the freedom to operate they need. Such portfolios are typ-
ically used in cross-licensing negotiations, effectively excluding small
players with no such bargaining chips. This strategy has been likened
by Jefferson to ‘mutually assured destruction (MAD) by patent estate’.
Cross-licensing is also preferred for its effects on marketplace percep-
tion, with heavy involvement in IP litigation usually ill perceived by the
public. More enlightened large companies therefore realise there might
be an alternative solution to do business, or to complement their actual
business.
Do patents hamper access to enabling tools in developing countries?
Probably not directly. Patents on research tools are mostly granted in
developed countries. Nevertheless, patent protection generally goes
hand in hand with price increases, thereby hitting developing countries
particularly hard.5 Do patents hamper research on technology that€ is
specifically relevant to developing countries? Probably not directly,
either. However, the economic implications of patenting, and existing
patent law and regulations, do not particularly stimulate research in the
interest of developing countries.6
Efforts to stimulate development-orientated research were initiated
in 2004 when CAMBIA received support from the Rockefeller founda-
tion and IBM to establish the Biological Innovation for Open Society
(BiOS) Initiative.7
BiOS develops, promotes and validates new tools for continu-
ous invention, improvement and delivery of biological technologies.8
‘Biological innovation’ is interpreted as innovation in the life sciences,
encompassing agriculture and medicine in the broadest sense. The
technology available to BiOS users aims at encouraging innovations in
these fields.
Inspired by the open source software movement where operating
�systems, programming languages and standards are shared and continu-
ously improved by the open-source software community, CAMBIA’s
‘Open Society’ initiative strives to make research tools freely available

CIPP Publications, 2004. Available at www.cimcgill.ca/data/publications/00000007.

pdf.
5
╇ Commission on Intellectual Property Rights, ‘Integrating Intellectual Property Rights
and Development Policy’, 2002, Available at www.iprcommission.org.
6
╇ Ibid.
7
╇ Dennis C. ‘Biologists Launch “Open-Source Movement”’, 431 Nature, 2004, 494.
8
╇ About BiOS. Available at www.bios.net.
196 Nele Berthels

under open source licenses. A clear distinction is made between research

tools that are to be made available open source, and the applications
created by those tools, that can be commercialised on a competitive and
proprietary market under non-open source conditions.
Using Internet communications tools and open source instruments,
BiOS promotes a paradigm shift in biotechnology at three levels: cre-
ating transparency in IP information through Patent Lens, develop-
ing cooperative open access technology through BioForge, and creat-
ing ‘innovation system structural reform’ through the BiOS Licenses.9
In€ this chapter, the three main BiOS activities will be discussed in
�further detail.

13.2 Main BiOS activities

Patent Lens
Patent Lens10 is a free online resource designed to provide transpar-
ent information related to patenting. Originally limited to life science
patents, Patent Lens now includes patents in all fields of technology.
Its free, searchable patent database incorporates data from WIPO,
USPTO, EPO, IP Australia, and over seventy national patent offices. It
includes full-text patent documents and information on patent family
and legal status. Patent databases of China, Japan and Korea are yet to
be included. Patent Lens is BiOS’s answer to commercial providers of
patent information such as Derwent™, Delphion™ and MicroPatent™
which were recently all incorporated into The Thomson Corporation,
with market monopolizing consequences.11
Patent Lens also provides tutorials on IP, information on patent pol-
icies and practices, and actual news and views, for example, on the
complex linkages between trade policy and innovation systems in the
light of TRIPs and country-specific enforcement mechanisms.12
Patent Lens further provides IP landscape papers on key platform
technologies, thereby focusing on freedom to operate in commentable,
reader-updateable interfaces.
Navigating IP landscapes in high-tech industries such as biotechnol-
ogy requires highly specialised legal expertise that is very expensive.

9
╇ The CAMBIA BiOS Initiative – Biological innovation for Open Society.
Implementation phase 2006–2008.
10
╇ www. patentlens.net.
11
╇ The CAMBIA BiOS Initiative – Biological innovation for Open Society.
Implementation phase 2006–8.
12
╇ Ibid.
 Case 8. The BiOS Initiative 197

Through Patent Lens, BiOS attempts to elucidate some of the com-

plexity of patenting, and reduce its costs. It reckons that clear and
reasonable strategies are prerequisites to limit financial risk and legal
exposure, irrespective of the company’s size. It is, however, unlikely
that Patent Lens can substitute legal and professional advice provided
by patent attorneys and lawyers, but it may nevertheless act in a com-
plementary manner.
Efforts to enhance access to patented technology have resulted in
the pooling of patents in pre-competitive ‘commons’.13 Patent pools
have been established in IT and electronics, and have been proposed
for biotechnological inventions.14 Yet, BiOS wants to go one step fur-
ther because ‘cooperative innovation by beneficiaries of the pool can be
an effective tool to forge a robust commons only when empowered by
transparency and definitive knowledge of the true technology patent
landscapes’. Open source’s low transaction costs are certainly benefi-
cial. However, CAMBIA reckons that a vulnerable point is the lack of
clarity on the value of patents included in the pool, and the possibility
that a critical patent be excluded from the pool or may arise later ren-
dering the pool useless and irrelevant.15
BiOS wants to address these issues by evolving Patent Lens into ‘a
facility for generating, linking and dynamically annotating patent land-
scape analyses through web interfaces by distributed and diverse users’
and to provide high-level decision support based on those landscapes
and their embedded knowledge.16

BioForge
BioForge is an online information portal for open source biotechnol-
ogy projects analogous to the Sourceforge.net open source software
repository.17 BioForge aims at catalyzing ‘a large community of inno-
vators to produce high quality and relevant biological technologies for
the empowerment of diverse problem-solvers in the developed and
developing world, and secure these technologies in a new, protected,
Â�universally-accessible commons’.18

13
╇ Jefferson, R., ‘Science as Social Enterprise: The CAMBIA BiOS Initiative’, 1
Innovations: Technology, Governance, Globalization, 2006, 13–44.
14
╇ Verbeure, B., van Zimmeren, E., Matthijs, G., and Van Overwalle, G., ‘Patent Pools
and Diagnostic Testing’, 24 Trends in Biotechnology, 2006, 115–20.
15
╇ The CAMBIA BiOS Initiative. 16╇ Ibid.
17
╇ BioForge: an online community for biological innovation. Available at www.bioforge.
net.
18
╇ Ibid.
198 Nele Berthels

BioForge offers alternatives to existing patented technologies and

strives to develop new technologies that particularly target developing
countries’ needs. Some current BioForge portfolios include:
• the ‘Crop Molecular Enabling Technologies’ portfolio on CAMBIA’s
TransBacter™ plant transformation system to bypass the patent-
stacked Agrobacterium-mediated gene transfer technology, and the
GUS™ and GUS-PLUS™ reporter-gene system to screen for trans-
gene behaviour, resp. The pCAMBIA transformation vectors were
developed to be compatible with these technologies;
• the ‘Genetic Resource Analysis’ portfolio build around CAMBIA’s
Diversity Array Technology (DArT™) to analyse genomes and
enhance molecular breeding activities. This technology is currently
used commercially by licensees in the plant and animal breeding
industry;
• the ‘Cancer diagnostics and therapeutics’ portfolio build around
CAMBIA’s recently acquired patents covering key aspects of the use
of the human telomerase gene and proteins for cancer diagnostics
and therapeutics.
Future BioForge portfolios are envisioned on homologous recombi�
nation (HARTs),19 apomixis,20 and medical and agricultural diagnostic
systems. The latter includes the first commissioned project on BioForge,
supported by the Lemelson Foundation, relating to bio-indicators that
allow farmers to make independent, informed decisions on crop grow-
ing, pest control, sensible use of fertiliser etc.
The open source philosophy of BiOS entails that all BioForge port-
folios and related know-how are available for use by anyone who agrees
to the terms of the BiOS License, however as with all patent licenses,
freedom to operate cannot be ensured as dominating patents may exist
or arise. This is a fundamental challenge in creating a commons.
While at first glance, with over 2000 users registered on the BioForge,
it seems a tentative success. But there are few if any new projects or
much substantive research work product emerging on the publicly
available site. It is worth asking whether the scientific community has
really bought into the concept and whether there are improvements that
must be made.

╇ Homologous Allelic Recombination (or Replacement) Technologies (HARTs).

19
20
In botany, apomixis is an uncommon but naturally occurring form of asexual repro-
duction. Apomixis seeds are clones of the mother plant. Introducing apomixis in
plants could be used to avoid the ‘terminator technology’ by which genetically modi-
fied plants adopt a suicide mechanism in their second generation seeds.
 Case 8. The BiOS Initiative 199

BiOS Licenses
The exploration, validation and promulgation of BiOS Licenses is
BiOS’s third level of activity. Today, a growing number of institutions
and companies, including BASF,21 use BiOS Licenses. In this legally
binding agreement, enabling technologies, e.g. of BioForge’s portfolios,
are available worldwide and royalty-free for all, based on the following
non-exhaustive elements:22
• All licensing agreements are non-exclusive.
• An owner of technology made available for use under a BiOS-compliant
agreement, or an improvement to such technology, may not assert IP
rights over that technology or improvement against any other entity
that abides by the terms of a BiOS-compliant agreement.
• All BiOS licensees covenant to share improvements, making them
available for use, even though they may be patented, to all other BiOS
licensees.
• Participants share biosafety data and any other information needed
to meet regulatory requirements for use in commercial products.
Open source licensing typically expects that licensees may sublicense
to an infinite number of sublicensees under the same conditions. This
facilitates ‘viral’ spreading as exemplified in open source software, and
embodies the ‘access to all’ philosophy. BiOS designed a protected
commons for open access and sharing of both patented and non-pat-
ented technology,23 while the ownership of technology remains with
the owner. The protected commons allow non-public disclosure among
BiOS licensees meaning that information is shared on confidential
grounds without risking invalidation of future patent applications or
misappropriation of information by third parties.24 Cornerstones of the
protected commons are the BiOS License and associated support and
material transfer agreements covering both patented and unpatented
enabling technology, as well as know-how, materials, biosafety data and
data needed for regulatory approvals.25
The BiOS License demands that improvements made to enabling
technology – which are protected by IP – are shared among other BiOS
licensees, but the products or materials made, created or obtained by
using an enabling technology, do not fall under this provision. A clear

21
╇ Richard Jefferson on Swiss TV. 2007 World Economic Forum, Davos, Switzerland.
Available at www.cambia.org.
22
╇ About BiOS (Biological Open Source) Licenses and MTAs. Available at www.
bios.net.
23
╇ Ibid. 24
╇ BiOS Agreement FAQs. Available at www.bios.net. 25╇ About BiOS.
200 Nele Berthels

distinction is made between ‘Improvements’ and ‘Products’ to assure

that there is a continuous improvement of the core toolkit through
sharing of technical improvements ‘while still being as supportive as
possible to entities involved in delivering products to the marketplace,
whether via for-profit or public good mode’.26
The BiOS License does not prevent any party from patenting
improvements made to BiOS-licensed technology. However, these
patented improvements have to be granted back to the licensor and
to all other BiOS (sub)licensees under the same open source condi-
tions. This ‘grant back’ concept strives to guarantee the use of improve-
ments without infringing IP rights.27 However, CAMBIA takes steps
to educate licensees and users of unanticipated or looming freedom
to operate issues that could dominate the rights granted under a BiOS
agreement. Grant back will only fully contribute to BiOS ‘viral’ char-
acter when complete alternative technology platforms become avail-
able.28 Currently, researchers have to complement enabling technology
obtained under open source conditions with regularly patented and
licensed technology.29 The owners of the latter might disagree on open
source licensing of improved enabling technology which incorporates
their technology.30
The BiOS License does not impose an obligation to patent improve-
ments or maintain patents, but patenting can nevertheless be requested
as well as supported by BiOS’s contributors. Indeed, strategic patent
applications and patents are an essential part of the BiOS License’s
enforceability, ‘just as legally enforceable copyright is at the foundation
of the University of California Berkeley-based open source Berkeley
Software Distribution (BSD) license’.31 Access to technology under
open source conditions only makes sense when malpractices are dis-
couraged. Therefore, it is crucial to BiOS and the owners of technol-
ogy to enforce patents and litigate infringers who are not agreeing to
the BiOS license. BiOS therefore has to ascertain substantial financial
means to obtain and enforce their patent portfolio.
In order to sustain and maintain BiOS’s services the ‘Technology
Support Services Subscription Agreement’, entitling BiOS licensees to
receive licensed material, aims at covering some of the costs involved. To

26
╇ Researchers & Non-profits FAQs. Available at www.bios.net. 27
╇ About BiOS.
28
╇ Boettiger, A., and Wright, B.D., ‘Open Source in Biotechnology: Open Questions’, 1
Innovations: Technology, Governance, Globalization, 2006, 45–57.
29
╇ Chilton, M., ‘Adding Diversity to Plant Transformation’, 23 Nat. Biotechnol., 2005,
309–310.
30
╇ Boettiger, A., and Wright, B.D., ‘Open Source in Biotechnology: Open Questions.’
31
╇ www.opensource.org/licenses/bsd-license.php.
 Case 8. The BiOS Initiative 201

academic and non-profit institutions, these costs are ‘solely to cover for
the costs of production and distribution’.32 Moreover, ‘cost recovery for
non-profit institutions, small and medium enterprises, and institutions
in disadvantaged locations may be partially or completely covered by
in-kind support of various sorts such as making infrastructure available
for cooperative research, exchanges of staff, helping a student etc.’.33
For-profit licensees are asked to pay a non-compulsory annual fee ‘at
rates related to the size of the enterprise’, for at least three years, with
a suggested fee schedule posted as a public access document. However,
companies that cannot afford the suggested fee can make an in-kind
contribution, e.g. by offering traineeships.34
Despite the associated cost for obtaining material, BiOS believes that
businesses using BiOS’s open source facilities can make the necessary
profit due to cost savings on accessing technology, litigation and devel-
oping early-stage innovation. However, their willingness to provide
licenses in the absence of such a Support Agreement, if not �materials,
shows a flexibility to accommodate the diversity of private sector
capabilities.

13.3 Conclusion
Problem-solving mechanisms resonant with the open source philoso-
phy may hold promising benefits for the economic sectors which could
benefit from biotechnology, and the community at large. A critical
point of CAMBIA’s BiOS Initiative is the drafting of ‘open’ licensing
agreements while safeguarding proprietary information in a protected
commons with a view to increasing the leverage and protection over
that commons. Some regard BiOS’s approach not as pure open source
since CAMBIA relied on grants from foundations to develop the tech-
nology rather than on volunteers.35 BiOS is also criticised for violating
software’s core principle of open source by not providing the licensee
with enough freedom to reject the licensor’s leadership over down-
stream development of the licensed technology.36 CAMBIA accepts
such criticism as indicative of a naïve expectation that one size fits all.

32
╇ BiOS Materials Request Form. Non-profit institutions only. Available at www.
cambia.org.
33
╇ BiOS Agreement FAQs. Available at www.bios.net.
34
╇ About BiOS Agreements. Available at www.bios.net.
35
╇ ‘The Triumph of the Commons: Can Open Source Revolutionise Biotech?’ The
Economist, Feb 10, 2005.
36
╇ Hope, J., ‘Open source genetics. Conceptual framework’, Chapter 12 of this volume.
Also see Boettiger, A., and Wright, B.D., ‘Open Source in Biotechnology: Open
Questions’.
202 Nele Berthels

As biological innovation, biotechnology and software are drastically

different in many aspects,37 a different approach regarding open source
licensing could be justified but should nevertheless strive for mutual
gain in order to succeed. Yet, BiOS wants to make open source work
where both fields meet: at the level of enabling technologies, the toolbox
that BiOS sees as increasing innovation efficiency when freely acces�
sible to all. Products or services, to the contrary, can be commercialised
and theoretically sold with lower costs and a lower legal exposure.
Costs associated with innovation using biotechnology are currently
high. It is therefore likely that funding from philanthropic organisations
and governments to address agricultural and health problems in devel-
oping countries remains vital. However BiOS’s approaches of transpar-
ency and leverage through creation of platform public resources may
make such expenditures more efficient and effective, and ultimately
may drive such costs down.
Open source biological innovation is a relatively novel concept with
CAMBIA’s BiOS Initiative currently being in an implementation and
exploration phase. As a new kid on the block, there are already positive
signs of successful participation from research institutes worldwide,
as well as from some large companies who engage in BiOS licensing.
Hence, BiOS has already proven that some large players in the field are
willing to shift paradigms, or at least make tentative explorations in this
arena. In recent years, BiOS also engaged in joint ventures with the
International Rice Research Institute (IRRI)38 and with funding from
the Rockefeller Foundation and the Government of Norway it has cre-
ated and provided the informatics platform – gratis – that underlies the
Public Intellectual Property Resource for Agriculture (PIPRA).39
At present CAMBIA’s most popular services are the widely respected
and broadly used Patent Lens, and the provision of pCAMBIA
�transformation vectors to researchers worldwide under open source
conditions and therefore at a nominal cost. The challenge CAMBIA
faces is to continue teaming up with large players in the biotech field to
invigorate credibility.
To really evaluate the full potential, early successes booked with open
source in biotechnology have to be further sustained, complementary
to the existing business models, and to serve as inspiration or enablers
of new business models in biological innovation. However, the concepts
articulated by CAMBIA’s BiOS Initiative, and the Patent Lens really

37
╇ Bains, W., ‘Open Source and Biotech’, 23 Nat. Biotechnol., 2005, 1046.
38
╇ Press release of December 13, 2005. Available at www.irri.org/media/press/press.asp.
39
╇ www.pipra.org.
 Case 8. The BiOS Initiative 203

are sector agnostic, and both information from, and engagement with
diverse innovation requirements across sectors may bring the critical
mass of experience and practitioners together.

R eferences
Bains, W., ‘Open Source and Biotech’, 23 Nat. Biotechnol., 2005, 1046.
Boettiger, A. and Wright, B.D., ‘Open Source in Biotechnology: Open
Questions’, 1 Innovations: Technology, Governance, Globalization, 2006,
45–57.
Centre for Intellectual Property Policy (CIPP), ‘The Research or
Experimental Use Exemption: a Comparative Analysis’, CIPP
Publications, 2004 (available at www.cipp.mcgill.ca/data/
publications/00000007.pdf)
Chilton, M., ‘Adding Diversity to Plant Transformation’, 23 Nat. Biotechnol.,
2005, 309–10.
Commission on Intellectual Property Rights, ‘Integrating intellectual
Â�property rights and development policy’, 2002 (available at www.Â�
iprcommission.org)
Dennis C., ‘Biologists Launch “Open-Source Movement”’, 431 Nature, 2004,
494.
Editorial, ‘Open-source Biology’, 431 Nature, 2004, 491.
Hope, J., ‘Open Source Genetics: A Conceptual Framework’, Chapter 12 of
this volume.
Jefferson, R., ‘Science as Social Enterprise: The CAMBIA BiOS Initiative’, 1
Innovations: Technology, Governance, Globalization, 2006, 13–44.
‘The Triumph of the Commons: Can Open Source Revolutionise Biotech?’,
The Economist, Feb 10, 2005.
Verbeure, B., van Zimmeren, E., Matthijs, G., and Van Overwalle, G.,
‘Patent Pools and Diagnostic Testing’, 24 Trends in Biotechnology, 2006,
115–20.
Yancey, A., and Stewart, C.â•›N., ‘Are University Researchers at Risk for Patent
Infringement?’ 25 Nat. Biotechnol., 2007, 1225–1228.

w ebsi t es

CAMBIA BiOS Initiative – Biological innovation for Open Society (available

at www.bios.net)
Patent Lens: a free online patent information resource (available at www.
patentlens.net)
BioForge: an online community for biological innovation (available at www.
bioforge.net)
14 Case 9. Diversity Arrays Technology
Pty€Ltd. (DArT)
Applying the open source philosophy in agriculture

Andrzej Kilian

14.1 Background
Diversity Arrays Technology Proprietary Limited (Pty Ltd) was founded
in 2001 in Canberra, Australia, with support from the Biotechnology
Innovation Fund of the Federal Government’s ‘Backing Australia’s
Ability’ program. The company was set up as a wholly owned subsidÂ�
iary of CAMBIA, a non- profit research institute based in Canberra,
as one of the mechanisms to deliver this author’s invention, Diversity
Arrays Technology (DArT). After nearly two years of operating with
this status, the company became privately owned in July 2003 with the
mission of improving the efficiency of using natural resources through
modern genetic and information technologies. At the time of writ-
ing, the company continues to focus on development and delivery of
DArT under an ‘open source’-style licence. More recently the company
has been moving towards more general genetic analysis services with
increasing investment in informatics tools. At the same time, pressured
by a significant increase in demand for its technology and services, the
company is investing more resources in the international expansion of
operations through creation of a network of similar organisations in
several countries. This case study for ‘open source’ licensing consti-
tutes a practical demonstration of the viability of service-based, non-
proprietary business models in the field of biotechnology.

History
The roots of the company are strongly aligned with the initial stages
of development of its main technology platform – DArT. In my role as
Director of Genomics in CAMBIA I was charged with the task of devel-
oping technologies relevant to less developed countries’ agriculture.
With a background in population and molecular genetics, I€perceived

204
 Case 9. DArT 205

a big opportunity for whole-genome profiling to positively impact crop

improvement but required appropriate instrumentation to develop a
proof of concept for my invention of ‘genotyping by hybridisation’. It
was made possible when my small team received low-cost microarray
equipment from Genetic Microsystems (GMS) Inc. as part of a beta-
testing arrangement and we tested the technology using rice genome
in 2001.1
With this proof of concept in hand, some support from one of the
Australian Government’s R&D corporations (the Grains Research
and Development Corporation – GRDC) and a modest philanthropic
donation to CAMBIA from the Rockefeller Foundation for further
development of DArT, we successfully applied for project support to
the Biotechnology Innovation Fund, part of the Australian Federal
Government’s ‘Backing Australia’s Ability’ programme. Together with
several small research grants this modest ‘seed money’ helped to estab-
lish DArT PL, albeit still fully integrated within the management struc-
tures of the parent organisation.

Technology
DArT was developed to complement existing technologies for DNA
polymorphism detection and quantification. Its success can be mainly
attributed to the ease and very low cost of marker discovery, elimination
of assay development costs and the low cost of data production, offering
an affordable genome profiling option for practically any organism.2
The major enabling component of DArT is the use of complexity
reduction systems and utilisation of ‘genomic representations’. The col-
lection of samples representing the genome (its ‘genepool’) is processed
using a combination of restriction digestion and amplification, the
fragments from such representation are individualised (usually cloned
in bacteria) and individual fragments arrayed on a solid support. The
main platform for practicing DArT is ‘microarray’ technology, com-
prising as the dominant components (1) a spotting device (arrayer) used
to create arrays of thousands of microscopic ‘spots’ of DNA and (2) a
scanner, a high resolution imaging device capable of detecting the out-
comes of hybridisation of fluorescently labelled nucleic acids (targets)
to the microarray of DNA ‘probes’.

1
╇ Jaccoud, D., Peng, K., Feinstein, D., and Kilian, A., ‘Diversity Arrays: a Solid State
Technology for Sequence Independent Genotyping’, 29 Nucleic Acids Res., 2001, e25.
2
╇ Technical details explaining DArT with many practical examples are available at
www.diversityarrays.com/ and in many papers we and our users have published over
the last few years.
206 Andrzej Kilian

For those with any DNA marker experience the technology can be
simply described as ‘parallel reverse Southern blot’ or ‘parallel reverse
Restriction Fragment Length Polymorphism (RFLP)’, as DArT shares
with RFLP both the hybridisation-based marker detection and polymor-
phism detection based primarily on the pattern of restriction enzyme
digestion. The use of restriction enzymes which show very high level
of specificity and robustness is the main reason for high data quality of
DArT assays. Importantly, DArT removes practically all limitations of
RFLP technology, mostly the slow, low plex, technically demanding
assay which translated to high cost and limited throughput.

Patents
The critical formal IP for practicing DArT technology is encapsulated
in one patent family called ‘Genotyping by hybridisation’ (US Patent no
6,713,258 B2, Australian patent no AU 2001260520 B2, New Zealand
Patent no 521626, patent pending in additional countries). The patents
cover the field of highly parallel genetic analysis based on the use of
complexity reduction methods in combination with nucleic acid hybrid-
isations. While initially owned by CAMBIA, during the preparation of
this case study for the present book the patent family was reassigned
from CAMBIA to Diversity Arrays Technology Pty Ltd. This change
in ownership will not have practically any impact on the technology
delivery process, as DArT PL will maintain its current licensing and
business models as described below.

14.2 Licensing
In order to understand the licensing aspects of DArT one needs to
remember that this technology was invented when I was working in
CAMBIA. CAMBIA’s general licensing policy was non-exclusivity
and DArT was supposed to be licensed to users under this condition.
In fact the initial arrangement gave Diversity Arrays Technology Pty
Ltd exclusive rights in the developed world when the company was
wholly-owned by CAMBIA. However, the intention always was to
keep the technology generally accessible through non-exclusive licens-
ing and exclusive rights were removed when DArT PL became pri-
vately owned.
While separating their operations in June 2003 DArT PL and
CAMBIA agreed to offer parallel licensing based loosely on ‘open
source’ principles, more specifically on the idea that improvements
to the technology should be subject to a ‘grant back’ provision from
 Case 9. DArT 207

licensees to whichever organisation had been the source of the licence.3

The idea of including grant back provisions in the licence was based on
the assumption that the initial technology developers/inventors could
play an important role in the future technology development. Under
this arrangement CAMBIA offers DArT through its BIOS initiative
(www.bios.org) while we at DArT PL are offering a licence to practise
the technology in the context of a complete technology package (soft-
ware tools, know-how/training, libraries of markers etc.).
Since the separation of CAMBIA and DArT PL the legal team at
CAMBIA/BiOS has developed a licence for DArT that is promoted as
an open source licence. While the strict adherence of CAMBIA’s BiOS
licences to open source principles has been publicly questioned,4 the
licence does offer access to the technology as in the original agreement
with DArT PL. However, as the list of BiOS licensees is not publicly
available it is impossible to judge the extent of DArT’s uptake or devel-
opment through this channel.
One sense in which DArT PL is adopting an open source approach
is that it is not using its IP as a means of excluding competition, but
rather to attract partners for joint delivery of the technology in new
market segments (new applications or new geographic regions with lit-
tle penetration). This is quite different from a traditional biotechnol-
ogy company’s approach, but is an important component of the overall
business model.
The operation of DArT PL (and its network) does not require control
over IP, but it does depend on ensuring freedom to operate (FTO).
Based on our review of the IP landscape and the lack of any challenges
to our FTO during several years of business activity in both companies
(DArT PL and Triticarte PL), DArT (and its products/outcomes) has
full FTO for its operations. This includes not requiring a licence to the
so-called ‘non-coding DNA’ patent owned by Genetic Technologies
(Melbourne), which has recently started to be enforced in the field of
agriculture.
Interestingly, a few years after the separation of DArT PL from
CAMBIA the level of interest in licensing just the right to practise the
technology in general is very low (practically non-existent), while at the
same time the level of interest in our genotyping services and technology

3
╇ A legal definition of ‘improvements’ and ‘grant back’ can be found at www.diversityar-
rays.com/pub/Legal.pdf.
4
╇ For example, by Hope, J. ‘Biological Open Source’. Message posted to http://open-
source.org/ Internet Mailing List, 15 November 2006. Archived at www.nabble.com/
APL-license – What-about-the-enforced-logos–to7226746.html#a7351547. Also see
Hope,€J., ‘Open source genetics. Conceptual framework’, Chapter 12 of this volume.
208 Andrzej Kilian

provision in general is rapidly increasing. I mention below a few possible

reasons for this apparent paradox with respect to large companies. For
small organisations, it seems there is an additional minimum invest-
ment entry barrier, as the instrumentation package enabling operation
is likely to be prohibitive. Furthermore, there is an apparent structural
incompatibility of non-profit/academic organisations with implement-
ing a technology like DArT in a cost-effective manner, primarily due
to relatively short-term (project/grant) focus and pressure on publica-
tions/knowledge building rather than provision of service. The DArT
PL business model was therefore designed to take these considerations
into account, in that it is not dependent on revenue derived from licens-
ing out the technology in isolation from other offerings.

14.3 Business model

In the initial phase of technology development and commercialisa-
tion it became apparent that large(er) corporations have little interest
in DArT with the lack of an option to take an exclusive licence being
most likely the main disincentive. However, another reason was that
large commercial entities tended to be strongly focused on the many
Single Nucleotide Polymorphism (SNP) platforms developed by means
of very large investments, primarily in the Human Genome Project. Yet
another possible reason for lack of serious interest in DArT was the fact
that many major players had already invested in alternative molecular
marker technologies like Amplified Fragment Length Polymorphism
(AFLP) and Simple Sequence Repeats (SSR) and were not willing to
write off this investment.
With this initial experience, DArT PL had to develop a business
model quite different from the one used by most biotechnology com-
panies. An important difference was the way of accessing capital, which
in the biotech area is traditionally sourced from the venture capital
(VC) market. Not only was there a very limited level of intellectual
property (IP) control, but also it was clear that DArT would not be able
to compete effectively in the market segment that had the largest poten-
tial profit margins (biomedicine).5 Without the two critical ele�ments
needed to make a business case for VC (control of the IP rights and
rapid profit growth potential) we had to look for alternative investors. It
became apparent that the most likely candidates for such a role would

╇ Investment of hundreds of millions of public and private dollars in Human Genome
5

Project and high throughput platforms resulted in ample availability of technologies

for human genotyping.
 Case 9. DArT 209

be the organisations involved in technology development for primary

industries, as they have a mandate and resources to invest in R&D for
their stakeholders (farmers), yet usually do not require exclusivity with
respect to the technology or its products.
Importantly, the need for an alternative path was not only Â�acceptable€–
it was indeed a major stimulus for developing the company further.
First, not selling the shares to an investor interested in profit maximisa-
tion allowed us to keep our focus on maximising impact in our area
of interest, which includes international agricultural research, an area
of clear market failure. An additional stimulus was coming from the
fact that we were moving the experimentation out of the lab into the
business arena: testing whether a successful company could be built
with little capital in the fairly competitive field of genome/nucleic acids
analysis. While we drew inspiration for finding the way forward from
many people and traditions, the book by Dee Hock,6 the founder of Visa
International, deserves a special mention, as his concept of ‘chaordic’
organisations helped us to develop a general framework for technology
delivery.
Instead of concentrating on fighting any possible competition, we
focused on developing collaborations and partnerships in recognition of
the need to effectively manage the demand/supply balance and help us
with product development. In our view, this is especially critical at the
early stages of technology (and market) development. Our first partner-
ship was with the Value Added Wheat Cooperative Research Centre,
through the creation in 2003 of a joint venture company, Triticarte Pty
Ltd, to deliver a wheat and barley genotyping service. Since the Tritcarte
PL worked well as 50–50 partnership (mainly due to the commonality
of vision of the two parent organisations and its officers), we are plan-
ning to use this model in expanding our international network.

14.4 Company products

DArT PL had to develop its products very quickly in order to survive
in the marketplace. The company’s initial offering – contract R&D – is
still an important source of revenue, but already the majority of revenue
comes from the provision of genotyping services using DArT arrays. A
new product for the company is its value-added genotyping service –
that is, provision of comprehensive genetic analysis including both data
production and downstream processing.

6
╇ Hock, D., Birth of the Chaordic Age, Berrett-Koechler Publishers Inc., 1999.
210 Andrzej Kilian

Contract research

The development of DArT for new species continues at an increasing

rate, with at least one new species initiated every month. Interestingly,
as DArT has already been developed for all the more economically
important species, developing the technology for new species almost
invariably involves working with smaller/less well-resourced players in
various consortia. These consortia are most often private–public part-
nerships which aim at pre-competitive technology development. While
DArT PL does not claim exclusive rights to any new technologies devel-
oped, we do make a commitment to deliver inexpensive genotyping ser-
vices using the product of our consortium efforts.

Genotyping services
With arrays developed for approximately thirty species (mostly crop
plants), we are now offering an inexpensive genotyping ‘DNA to data’
service, often through scientific collaboration projects. As in any other
service-based organisation, timeliness of service and the quality of data
generated is critical for us. Establishing comprehensive informatics
support for sample tracking (DArTdb) and automatic data extraction
(DArTsoft) was critical to achieve sufficient throughput and ensuring
high data quality. Returning business and customers’ feedback suggests
that our service is of high quality.

Genetic testing/knowledge
In recognition of the limitations on efficient downstream data analysis
(i.e. extracting useful information from data), we devote an increasing
amount of time to the development of software tools which add value to
our data. While we are considering commercialisation of these tools as
separate products, our vision is to combine them with our data produc-
tion service and move towards genetic knowledge generation. Our deci-
sion is motivated not so much by a perceived business opportunity, but
by the realisation that very few of our clients are capable of extracting
information imbedded in data we report. This is especially true for cli-
ents from small breeding programmes or public institutions, but even
large(er) organisations are likely to capture more effectively the value
of whole-genome profiles when supported by the more advanced data
processing algorithms we have developed. There is little doubt that in
the long run the availability of such value-added services may translate
into greater commercial success.
 Case 9. DArT 211

14.5 Lessons for biomedicine

Assuming that survival in the marketplace and modest, but consistent,

growth is a mark of success I can list several factors which in my opin-
ion helped us to get where we are right now:
1.╇ Excellent team. We were very fortunate to assemble a group with a
great mix of talent and complementary skills at the very early stage
of company development: the manager, Eric Huttner, combining
biotech business and good science background; Peter Wenzl, a tal-
ented and dedicated Principal Scientist; Grzegorz Uszynski, a crea-
tive and very productive IT manager. Apart from these most senior
staff we have a dozen biology and IT personnel with great dedication
and talents. Development of technology and the company under the
guidance of the inventor has been important, in that the pricing
structure for technology development and services is designed to
maximise the impact of technology, not the profit.
2.╇ The unique strength of DArT as a technology, fitting very well into
a market niche characterised by very low margins, albeit fairly high
volume.
3.╇ Collaborative spirit. Many, if not most, of our technology develop-
ment projects have been executed as a collaboration/co-development
of the technology with users. This was done through a scientific
visits programme to our company with over twenty scientists from
practically all continents spending from a few months to over a year
working on developing arrays and/or generating data. This enabled
us to develop a lot of products on a shoe-string – a critical aspect of
operating in an area with practically no profit margins.
It is difficult to generalise our experiences to biomedicine, as each tech-
nology will have its own specific constraints and opportunities. A sig-
nificant issue the two fields have in common is access to capital and
the likely need to step out of the box to develop a business model which
can work for a particular technology or product(s). I expect that in the
current economic environment and investors’ mindset, only some bio-
tech businesses will have a chance to succeed with an open source IP
regime. Possibly the best opportunity could be for those who will be
able to find a specific niche, likely in an area of limited financial oppor-
tunity, where competition with mainstream companies would be less
intense. In order to change this pessimistic outlook one would like to
see more resources available to those wishing to pursue non-standard
business models, with positive social impact rather than driving the
maximum profit.
212 Andrzej Kilian

R eferences
Hock, D., Birth of the Chaordic Age, Berrett-Koechler Publishers Inc., 1999.
Hope, J. ‘Biological Open Source’. Message posted to http://opensource.
org/ Internet Mailing List, 15 November 2006. Archived at www.�
nabble.com/APL-license – What-about-the-enforced-logos–to7226746.
html#a7351547
â•… ‘Open source genetics. Conceptual framework’, Chapter 12 of this volume
Jaccoud, D., Peng, K., Feinstein, D., and Kilian, A., ‘Diversity Arrays: a
Solid State Technology for Sequence Independent Genotyping’, 29
Nucleic Acids Res., 2001, e25
15 Critical commentary on ‘open source’ in the
life sciences

Arti K. Rai

15.1 Introduction
The conceptual paper and case studies in this section evaluate pos-
sible extensions of the “open source”-style private ordering that has
emerged in software to the life sciences. In evaluating such extensions,
it is important initially to note the historical context in which open
source emerged in software and the many flavors in which open source
software currently comes. From this clarification of first principles, we
can then imagine what open source in the life sciences might look like.

15.2 Background and clarification of principles

The concept of open source in software has its origins in the quasi-
Mertonian ethic that prevailed among academic laboratories in the
1960s and 1970s. At the time, packaged software was relatively �unusual,
and labs regularly exchanged software and underlying source code for
purposes of modification and improvement.1 The emergence of pack-
aged software offered without underlying source code began to erode
this Mertonian ethic. As Janet Hope points out, 2 one response to such
erosion was Richard Stallman’s GPL license,3 which utilizes copy-
right licensing to mandate an expanding “commons” of source code.
The GPL license not only sets up a situation where the source code
commons can not be made proprietary, but by so doing it may create
incentives to contribute in the first instance. A large percentage of open
source software licenses continue to employ some version of Stallman’s
“copyleft” approach.

1
╇ See von Hippel, E. & von Krogh, G., ‘Editorial: Special Issue on Open Source Software
Development’, 32 Research Policy, 2003, 1149.
2
╇ See Hope, J., ‘Open source genetics. Conceptual framework’, Chapter 12 of this
volume.
3
╇ GNU General Public License Version 2 (June 1991), http://www.gnu.org/licenses/
gpl.txt.

213
214 Arti K. Rai

On the other hand (contrary to Janet Hope’s argument that licens-

ing is “fundamental” to open source)4, various other flavors of open
source€ – perhaps most notably the Berkeley Software Distribution
(BSD) license – essentially amount to a dedication of source code to
the public domain. Those who improve upon source code distributed
under BSD licenses may feel a norm-based obligation to contribute
their improvements back, but they are under no legal obligation to do
so.5 In the case of BSD and similar open source licenses, emphasizing
the licensing component of open source is excessively formalistic.
As the example of BSD illustrates, open source could be seen as a
mode of production rather than a legal architecture. Indeed, to the
extent open source presupposes – to use Janet Hope’s terminology6 –
“credible commitment” and “competition”, these features may follow
from the simple reality that a core amount of material has been irrevo�
cably made available for all to use. For this reason, some of us have used
the term “open and collaborative research” instead of open source; in
using this terminology, we wish to emphasize the organization of pro-
duction and what is done with the results of production, rather than
details of licenses.7

15.3 Open and collaborative life sciences research

Role of law/licensing
Non-legal, social norm-based approaches may have particular salience
in the life sciences. For example, in the case of life sciences software –
which is produced by, and for, a relatively small scientific community –
empirical work that I have done indicates that copyleft licensing is much
less common than in open source projects as a whole.8 Various genome
annotation projects also use a distributed approach without necessarily
relying on copyleft.9 Similarly, Josh Lerner and Jean Tirole have found

4
╇ See Hope, Chapter 12 of this volume.
5
╇ In distinguishing obligations imposed by positive law from obligations imposed by
social norms, I follow the convention of many US legal scholars, who distinguish these
sets of obligations. See, e.g., Ellickson, R., Order Without Law: How Neighbors Settle
Disputes (1991).
6
╇ See Hope, Chapter 12 of this volume.
7
╇ Rai, A.K., ‘Open and Collaborative Research: A New Model for Biomedicine’, in
Robert W. Hahn (ed.), Intellectual Property Rights in Frontier Industries: Software and
Biotechnology, 2005, 131.
8
╇ Specifically, as of February 2005, 47.4% of active projects in the ‘bioinformatics’
area of SourceForge used GPL licensing. This compared with 72% of projects in
SourceForge as a whole. Unpublished data, on file with author.
9
╇ See, e.g., BioDAS, www.biodas.org.
 Critical commentary on ‘open source’ in the life sciences 215

that strong copyleft licensing is less common where the community of

users is relatively specialized.10 As noted earlier, where a copyleft license
used is not being used, the license is functionally much closer to a dedi-
cation to the public domain.
Moreover, an emphasis on law/licensing can sometimes pose, rather
than resolve, problems. Two challenging issues involve, first, the
need for an underlying property right and, second (at least for copy�
left licenses), the need for line-drawing based on the economics of the
industry in question.
As an initial matter, efficient licensing requires an underlying prop-
erty right. Absent such a right, those who wish to impose restric-
tions must do so entirely through contract. The resulting contractual
restrictions can do more damage than good. The case of the publicly
funded International HapMap project provides a good illustration of
the problems associated with using licensing absent a property right.
For a period of time, the HapMap project used a click-wrap license
that required those who sought access to data on human genetic vari-
ation (so-called single nucleotide polymorphism or “SNP” data) to
refrain from combining it with their own proprietary SNP data in
order to seek product patents on haplotypes (patterns of SNPs that
are inherited together). In order to prevent leakage of the data outside
the confines of this click-wrap license to those who would then have
no obligation to the HapMap, the license required those who sought
the data to refrain from disseminating such data to anyone who had
not agreed to the license. Conventional publication of the data was not
possible. This condition is no longer imposed because it is believed
that the database has reached a sufficient density to be self-sustaining
and to defeat subsequent patent claims. However, the old requirements
illustrate the difficulties that may arise where there is no underlying
property right.
The HapMap project also illustrates the line-drawing problem that
can arise when a copyleft approach is taken outside the context of soft-
ware. In software, there is no real need for such line-drawing: there is
little evidence that conventional IP rights are useful as incentives at any
stage in the development process. But in other industries, where patents
may be important as incentives, there is a need to delineate carefully
the scope of information that must be put back into the commons. The
HapMap license employed a complex and ambiguous licensing �policy

10
╇ Lerner, J. & Tirole, J. ‘The Scope of Open Source Licensing’, 21 Journal of Law,
Economics, and Organization, 2005, 20.
216 Arti K. Rai

that appeared to prohibit product patents on haplotypes but allow cer-

tain types of process patents.11
A careful drafter may be able to craft language that draws appropri-
ate lines between what materials fall within the commons and what
remains outside. For example, as the case study on BiOS notes,12 this
group has licenses that do make relatively clear and careful distinc-
tions. Under the BiOS license, patents on improvements to the enabling
technology – a suite of tools for creating transgenic plants – must be
“granted back” and made available to other users of the commons.13
But patents on end-product transgenic plants are not subject to a grant-
back requirement.
However, the BiOS strategy of drawing ex ante distinctions may
fare poorly when applied to enabling technology that is likely to lead
in diverse, and perhaps unanticipated, directions. Where these dif-
ferent directions vary in levels of capital investment required, patents
will have different degrees of importance.14 For example, in the case
of synthetic biology, relevant platform technologies could be used
for products ranging from relatively simple tests for environmental
toxins15 to therapies that require clinical trials and regulatory
approval.
Indeed, even within a single area of end product application, the level
of capital investment required may change. For example, in the US,
diagnostic genetic tests have generally not required much in the way of
capital investment. This is because such tests have typically not been
classified as the types of “medical devices” that would be subject to the
US Food and Drug Administration’s most exacting regulatory require-
ments. But that situation may soon change, at least for certain types of
diagnostic tests.16

11
╇ See Eisenberg R.S. & Rai, A.K. ‘Harnessing and Sharing the Benefits of State-
Sponsored Research: Intellectual Property Rights and Data Sharing in California’s
Stem Cell Initiative’, 21 Berkeley Tech. L.J., 2006, 1187, 1207–9.
12
╇ See Berthels, N. ‘Case 8. CAMBIA’s Biological Open Source Initiative (BiOS)’,
Chapter 13 of this volume.
13
╇ CAMBIA BiOS License for Plant Enabling Technology, § 3, www.cambia.org/daisy/
PELicense/751/1169.html.
14
╇����������������������������������������������������������������������������������������More specifically, the relevant variable is capital investment that would not be appro-
priable absent a patent right.
15
╇ Chu, J. ‘A Safe and Simple Arsenic Detector’, Technology Review, 25 January, 2007.
16
╇ US Department of Health and Human Services, Draft Guidance for Industry,
Clinical Laboratories, and FDA Staff: In Vitro Diagnostic Multivariate Index Assays,
26 July 2007, available at www.fda.gov/cdrh/oivd/guidance/1610.pdf.
 Critical commentary on ‘open source’ in the life sciences 217

Role of competition
As noted, Hope argues for the centrality of competition to open source.
She further notes the BiOS licenses are not truly open source because
it does not allow for competition – for “forking” of the code.17 As a
practical matter, because forking in open source software is rare in
any event,18 this divergence from open source may be more apparent
than€real.

Will the project be sustainable?

Finally, it bears emphasis that the extent to which either norms or copy�
left licensing is likely to yield further project growth may be quite sector-
specific. While certain bioinformatics projects (e.g. BioPerl)19 appear to
have had some success in inducing such contributions, 20 BiOS has had
much more limited success.21

15.4 Conclusion
Successful translation of open source principles into the life sciences
will require far more than simple cutting and pasting. In part, this is
because even open source projects in their native context show a great
deal of diversity. An emphasis on legal formalities fails to encompass
that diversity. Equally important, the life sciences context involves a
set of participants, and a set of economic realities, that is quite differ-
ent from software. Even open source bioinformatics software appears
to look systematically different from open source software in other
contexts.

R eferences
Berthels, N. ‘Case 8. CAMBIA’s Biological Open Source Initiative (BiOS)’,
Chapter 13 of this volume.

17
╇ Hope, see Chapter 12 of this volume.
18
╇ Raymond, E., ‘The Magic Cauldron’, available at www.catb.org/~esr/writings/magic-
cauldron.
19
╇ www.bioperl.org.
20
╇ Stajich, J. et al., ‘The Bioperl Toolkit: Perl Modules for the Life Sciences’, 12 Genome
Research, 2002, 1611.
21
╇ Statement of Richard Jefferson, Washington University conference on Open Source
and Proprietary Models of Innovation, 4 April 2008. According to Jefferson’s oral
presentation, many organizations have licensed the BiOS technology, but none has
contributed improvements back.
218 Arti K. Rai

Chu, J. ‘A Safe and Simple Arsenic Detector’, Technology Review, 25 January

2007.
Eisenberg R.â•›S. and Arti K. Rai, ‘Harnessing and Sharing the Benefits
of State-Sponsored Research: Intellectual Property Rights and Data
Sharing in California’s Stem Cell Initiative’, 21 Berkeley Tech. L.J., 2006,
1187, 1207–9.
Ellickson, R. Order Without Law: How Neighbors Settle Disputes, Harvard
University Press, 1991.
Hope, J., ‘Open source genetics. Conceptual framework’, Chapter 12 of this
volume
Lerner, J. and Tirole, J. ‘The Scope of Open Source Licensing’, 21 Journal of
Law, Economics, and Organization, 2005, 20.
Rai, A.â•›K ., ‘Open and Collaborative Research: A New Model for
Biomedicine’, in Robert W. Hahn (ed.), Intellectual Property Rights in
Frontier Industries: Software and Biotechnology, 2005, 131.
Raymond, E., ‘The Magic Cauldron’, available at www.catb.org/~esr/
writings/magic-cauldron
Stajich, J. et al., ‘The Bioperl Toolkit: Perl Modules for the Life Sciences’, 12
Genome Research, 2002, 1611.
von Hippel, E. and von Krogh, G., ‘Editorial: Special Issue on Open Source
Software Development’, 32 Research Policy, 2003, 1149.
16 Several kinds of ‘should’
The ethics of open source in life sciences innovation*

Anthony S. Taubman

What is the matter? Has Protagoras robbed you of anything?

Yes, indeed he has, Socrates, of the wisdom which he keeps from me.
But, surely … if you give him money, and make friends with him, he
will make you as wise as he is himself.1

16.1 A sui generis ethical space for life sciences innovation?

Life science innovators work in an ethical space that is distinct from the
general run of technology, whether or not they would choose this status.
We expect life science innovation to serve such fundamental human
needs as health, nutrition and environmental protection, and to deliver
its fruits in the forms of proven and effective technologies as widely and
equitably as possible. The call for access to the fruits of this innovation
is more insistent than for any other technology, because essential human
wellbeing – even life itself – is at stake; because a good proportion of
the upstream inputs to applied life sciences research are derived from
the public sector or from research funded by public or philanthropic
sources; and because genetic inputs to research – Â�biodiversity, human
tissue, seeds – pose sui generis ethical and legal questions. Society’s scru-
tiny over life sciences innovation is therefore more stringent and vigor-
ously debated than the regular run of technology, a scrutiny expressed
at the ethical, political and formal regulatory levels.
It follows that in the life sciences especially, intellectual property (IP)
law and its practice is typically viewed, from an ethical point of view,
as an essentially utilitarian means towards public policy ends, with its
worth assessed from a consequentialist and empirical perspective. The
1

*
╇ The present contribution draws in part on the author’s presentation, ‘Several kinds
of “should” in life sciences innovation’, Wizards of OS 4, Berlin, 15 September 2006.
The paper represents the author’s personal views only; does not present views that
should be attributed to WIPO, its Secretariat or its Member States.
1
╇ Plato, Protagoras (translated, Benjamin Jowett, at 310d).

219
220 Anthony S. Taubman

attainment of ‘justice’ and ‘equity’ is measured in hard outcomes, and

any appeal to ‘natural law’ underpinnings of IP rights or an inherent
sense of entitlement is given an unsympathetic hearing in the bus-
ily contested policy arenas of life sciences. Ultimately, in this debate,
only public policy outcomes count: the production and effective dis-
semination of certain concrete public goods. The IP system in the life
�science is expected to yield knowledge goods that are practically avail-
able as proven products and processes (new drugs, crops or uses of
biodiversity), and higher level public goods, 2 such as global equity in
distribution of these products, and ultimately equity in the enjoyment
of the right to life3 and in adequate health services. Given the strong
emphasis on actual access to technologies and on tangible public wel-
fare outcomes, the ethical framework is shaped essentially by the need
to address the inherent scarcity of knowledge resources and research
capacity (leading to neglected disease burdens and agricultural needs),
and to address inequities of access to research outputs; there is less
said about the inherent sense of entitlement for the innovator and ori-
ginator.4 Where robust and credible incentives for private investment
in research and development are recognized as being essential, this
is nonetheless argued for broader utilitarian reasons and not because
of any natural law entitlement. On the international policy plane, this
turn to strong utilitarianism in evaluating the IP system is in part an
unwitting consequence of the blending of trade policy and IP regula-
tion though TRIPS. But there are special factors that further accentu-
ate the hard utilitarian demands set for IP in the life sciences. The sense
that much is at stake means that perceived failings and shortcomings
in the system – any failure to innovate effectively, to address neglected
needs, to ensure full and equitable access – attracts sceptical scrutiny
and precipitates calls for reform and for new pathways for innovation
in public health.

2
╇ For discussion of higher order public goods in this context, see Antony Taubman,
‘Saving the Village: Conserving Jurisprudential Diversity in the International
Protection of Traditional Knowledge’, in Keith E. Maskus and Jerome H. Reichman
(eds.), International Public Goods and Transfer of Technology Under a Globalized Intellectual
Property Regime, 521 (2005).
3
╇ In 2005, the adult mortality rate (probability per 100,000 of dying between 15 and
60 years) for women ranged from 789 in Zimbabwe to 45 in Japan; life expectancy for
males at birth ranged from 39 (Angola) to 79 (several developed countries). (Source:
World Health Organization, at www.who.int/healthinfo/statistics/en/).
4
╇ But contrast traditional knowledge and associated genetic resources for which natural
law claims are mingled with calls for historic retribution for misappropriation, and
the invocation of higher order public goods in the form of conservation of diversity of
biota, of cultures, of jurisprudence.
 Several kinds of ‘should’: the ethics of open source 221

This search for alternatives to ‘IP’5 in life sciences innovation springs

from a critique at three levels: (i) revisiting the inherent legitimacy
of the foundational principles of IP law and policy; (ii) assessing how
these principles are actually applied in practice at the level of govern-
ance and administration; and (iii) gauging the impact of the individ-
ual exercise of rights granted under the system. This critical analysis
can, indeed, equivocate between these discrete levels, conflating the
legal framework with the many and disparate distinct choices made
within it. The broad legislative framework itself is critiqued from a hard
consequentialist position: it is assessed in terms not of what it aspires
to achieve but by its practical impact. But this critique can display a
degree of ambivalence: is the essential issue (i) the fact that exclusive
rights over new technologies are available in principle under the law; or
(ii) a practice of the administrators of the system granting actual patent
rights that are inappropriately at odds with these principles, lacking
the required attributes of true inventions; or (iii) the manner that indi-
viduals and firms apply for, assert and deploy these rights so as, in
practice, to yield outcomes at odds with the policy goals of the system
(using patents effectively to deny to the public the benefits of valuable
new technologies and thwarting valuable innovation) or in tension with
society’s ethical expectations (e.g. pushing the cost of a diagnostic test
beyond the reach of all but the wealthy, or illegitimately profiting from
others’ investment in research)? Is the root problem the system design,
its broad execution or perverse individual choices that conflict with
systemic goals? If the critique determines that the essential problem
is a mix of all three, how can interventions be calibrated and applied
so as to match practical remedies with each facet of the problem? The
debate over ‘open source’ biotechnology is a fascinating case study as
it can at times be phrased as a critique of the legitimacy of the formal
grant of exclusive rights as such over critical technologies, but as a prac-
tical intervention it would appear to reform actual behaviour and actual
choices in the deployment of such rights.6 Could it reform the �essential

5
╇ In this polemical context, ‘IP’ is often conceived as a distinct innovation system and
set of values, rather than – more accurately, in this writer’s view – as a precise kind
of legal mechanism that can be implemented in radically different ways to construct
diverse innovation systems and to express and defend diverse value systems.
6
╇ The contrast between a policy intervention and the encouragement of preferred forms
of exercise of rights is captured well in the preamble of the GNU General Public
License Version 3 (29 June 2007), at www.gnu.org/licenses/gpl-3.0.html: ‘States should
not allow patents to restrict development and use of software on general-�purpose com-
puters, but in those that do, we wish to avoid the special danger that patents applied to
a free program could make it effectively proprietary. To prevent this, the GPL assures
that patents cannot be used to render the program non-free.’
222 Anthony S. Taubman

conception of what should be the legitimate bounds of an exclusive

right, by influencing actual practice and the effective normative expec-
tations upon right holders?
Precisely because so much is at stake – conceivably, the future well-
being of humanity – it is proper for the same ethical and empirical rig-
our that is applied to the conventional IP system to be applied equally
to proposals for the reform, renouncement or replacement of that sys-
tem: assertion of new modes of innovation that are disruptive or divert
resources merits the same ethical scrutiny as the complacent endorse-
ment of the status quo. The current necessary, valuable, active debate
about how best to optimize innovation processes in the life sciences:
how best to draw in and structure the different inputs needed – finance
and infrastructure, platform technologies, know-how, regulatory data
or product development capacity – and how to ensure equitable dis-
semination of the fruits of innovation, cannot run the risk of �privileging
certain abstracted models over a robust and practical assessment of
what actually functions, what will deliver.
A priori theoretical preferences range from viewing recognition of
intangible property as a bedrock of a sound knowledge economy7 and
as a precondition for the transactions in intangibles that construct a
new life sciences product, to acute scepticism about any propertisation
or legal exclusivities over knowledge goods in the life sciences.8 Both
sets of preferences are argued to be justified by a blend of strictly utili-
tarian and broader ethical and human rights arguments, often with
some equivocation between the two: is public choice to be guided by
what is right or by what works, is it right because it works, or does it
have to be right (or legitimate) in order to be practically sustainable?
In practice, an unexpectedly pluralist spectrum and a supple range of
diverse innovation models stretch between these two extremes; while
the conceptual dichotomy between the two fuels much debate, the
actual working mechanisms that deliver beneficial products typically
ply the extensive territory (‘policy space’) that lies between these two
conceptual positions.

7
╇ See Alexandra C. Horst, International Property Rights Index (IPRI): 2007 Report,
at www.InternationalPropertyRightsIndex.org: ‘Once a domain mainly considered by
the affected inventors and companies themselves, public interest in intellectual prop-
erty protection has risen substantially, as the vast majority of the world is now affected
by its success or failure’ (at 8).
8
╇ E.g. the recasting of intellectual property rights as ‘intellectual monopoly privileges’
(IMPs), see e.g. Greg Martin, Corinna Sorenson and Thomas Faunce, ‘Balancing
intellectual monopoly privileges and the need for essential medicines’, 3 Global Health
4,. 2007 (Published online 2007 June 12. doi: 10.1186/1744–8603–3–4).
 Several kinds of ‘should’: the ethics of open source 223

The present comment explores the ethical framework for analysing

innovation structures in the life sciences to assist in the rational choice
of model to support desired innovation and access outcomes, with a
particular focus on the conceptual infrastructure for analysis of open
source models in the life sciences. This search for rigour is, however,
the precise opposite of a sceptical or reactionary appraisal: it is a strat-
egy that aims to shift the search for new models and new structures
from an academic inquiry and from an exchange of memes into a prac-
tical art: reduction to practice.
The call for open source innovation is at one level a reaction to the
observation that the foundational choice in IP policymaking is, at first
blush, radically counterintuitive; this is one reason why the patent sys-
tem in general is subject to a repeated cycle of sceptical review: law-
makers provide for patents in order to induce the production of public
knowledge goods, such as new technologies, that would not otherwise
be financed and produced, and they do this by a means of structured,
systematic exclusions from the public domain. In short, public goods are
produced by restricting the public domain. IP management in the life
sciences has to reconcile this superficial tension between the exercise of
exclusive rights and the promotion of public welfare outcomes, and to
ensure that the tension remains only superficial rather than structural:
in principle, innovations are excluded from the public domain in order
to garner the concentration of resources that is necessary to take an
invention entirely through the production pipeline to yield a practically
useful product.
In principle, therefore, a utilitarian, objective IP policymaker
has to determine what privately-held exclusions from the pub-
lic domain of otherwise non-excludable knowledge resources are
required to harness sufficient private interest to provide for the pro-
duction of useful public goods that would not otherwise come into
existence.9 But how does the objective policymaker, ideally removed
from sectoral bias, in the original position behind a Rawlsian veil of

╇ 9
╇���������������������������������������������������������������������������������This is not, of course, by any means the mechanism for harnessing private inter-
est to provide for public goods. There is, for example, a considerable economic lit-
erature on the private provision of public goods, considering such phenomena as
corporate philanthropy, political campaign donations. See Eduardo Ley, ‘On the
Private Provision of Public Goods:A Diagrammatic Exposition’, 20 Investigaciones
Economicas€ 1, 1996, 105–23, at IMF, Washington DC, http://econwpa.wustl.edu/
eprints/pe/papers/9503/9503001.abs. See the economic model for non-cooperative
provision of public goods in Theodore Bergstrom, Laurence Blume, and Hal Varian,
‘Private Provision of Public Goods’, 29 Journal of Public Economics, 1986 25–49. at
http://econwpa.wustl.edu/eprints/pe/papers/9503/9503001.abs.
224 Anthony S. Taubman

ignorance,10 determine what exclusions would be just; or legitimate;

or effective; and what blend of hard utilitarianism and more abstract
appeal to justice is right? And in setting these formal legal exclusions
from the public domain, what assumptions are made about how indi-
vidual actors will exercise the ensuing exclusive rights? Classical lib-
eral economic analysis11 (the ‘invisible hand’)12 suggests that overall
public welfare is unwittingly advanced by the cumulative effect of indi-
vidual economic actors pursuing their private interests. But can such
an analysis be reliably extended to the promotion of welfare through
the production of intangible public goods generated by the recognition
of private rights under the IP system? Some public goods would result
either directly or as externalities from the pursuit of private interest, as
the spontaneous ordering of the market and communication through
market exchange promotes beneficial investment and innovation.
Classically applied to goods and services,13 this analysis may illumi�
nate the harnessing of private interest to produce intangible knowledge
products of benefit to society, offering a systematic utilitarian ethical
basis to IP mechanisms. Intangible property, or exclusions from the
public domain, can promote the spontaneous order that works for soci-
ety’s overall gain: accepting limitations on commercial use of know-
ledge through legally crafted exclusions may be the most effective way
of producing some public goods.14 But it would be Â�politically naïve,

10
╇ John Rawls, A Theory of Justice, Harvard University Press, 1971; R.J. Kilcullen,
Rawls: The Original Position, Macquarie University, 1996, www.humanities.mq.edu.
au/Ockham/y64l13.html.
11
╇ For a brief historical review of these aspects of liberalism, see Steven Horwitz, ‘From
Smith to Menger to Hayek: Liberalism in the Spontaneous Order Tradition’, 6 The Indep.
Rev. 1, 2001), at 81.
12
╇ In Adam Smith’s classic formulation: ‘by directing that industry in such a manner
as its produce may be of the greatest value, he intends only his own gain, and he is in
this, as in many other cases, led by an invisible hand to promote an end which was no
part of his intention. Nor is it always the worse for the society that it was no part of it.
By pursuing his own interest, he frequently promotes that of the society more effec-
tually than when he really intends to promote it.’
13
╇���������������������������������������������������������������������������������With the assumption that intangible knowledge products are not economically sig-
nificant: note Smith’s reference to the intangible or ephemeral product of ‘players,
opera-singers, opera-dancers, etc.’ as producing ‘nothing which could afterwards
purchase or procure an equal quantity of labour. Like the declamation of the actor,
the harangue of the orator, or the tune of the musician, the work of all of them per-
ishes in the very instant of its production.’ Smith A., An Inquiry into The Nature and
Causes of the Wealth of Nations, Henry Frowde (ed.), Oxford Univ. Press, 1909, 1776.
14
╇ The imposition of an exclusion means that they cease to be true public goods, as
these are by definition not excludable, but the disclosure requirements of technology-
related IP protection are intended to ensure that protected subject matter passes into
the public domain firstly as a public knowledge good (patent information is not, in
principle, excludable from the time of its publication), and, through limited term.
 Several kinds of ‘should’: the ethics of open source 225

ethically obtuse and analytically barren to rely wholly on this mecha�

nism in a laissez-faire manner as the sole means of ensuring the pro-
duction of public knowledge goods in the life sciences. Precisely tai-
lored exclusions from the public domain are essential to �capture and
direct private interest towards the production of certain public goods
that would otherwise not exist: for instance, this is the rationale, at
least, of orphan drugs initiatives and some approaches to protection
of test data for pharmaceuticals and agricultural chemicals. But the
complexity of the pathway towards a finished product, the need for a
broad base of infrastructure and open knowledge, and the distinctive
risk patterns of life sciences innovation also entail an exceptional need
for public impetus, public policy direction setting and distinct public
financing of public goods15 in such areas as health, agriculture and the
environment. One line of argument against exclusive rights and their
restrictive exercise is indeed the high level of public funding that goes
into the innovation infrastructure and the key upstream technologies
in these field. Yet to relinquish altogether the possibility of exclusive
rights over such public inputs, waiving any residual say over their appli-
cation and the distribution of derivative benefits, is itself an expression
of confidence in another invisible hand, one that draws enlightened
private capital and public researchers together into welfare-enhancing
partnerships that invest resources and opportunity cost into the devel-
opment and delivery of products built from public domain inputs. In
some circumstances, at least, the prudent policymaker will retain a
reserve possibility of invoking ‘private’ rights to induce more socially
beneficial applications of public-origin technology, and to exert lever-
age over downstream uses of this technology.
But much hinges on how those private rights are exercised, and by
whom they are held: the mere formal recognition that a legal right exists
to exclude third parties is only a small part of the overall pattern of
knowledge management, since so much depends on who is excluded,
and who is included, by those exclusive IP rights, and to what ends, and
subject to what conditions. This is perhaps one broad systemic message
of the open source paradigm as applied to the life sciences: ‘It’s not
what you got, it’s how you use it.’16

15
╇ Samuelson, P. (1954), The Theory of Public Expenditure’, 36 Review of Economics
and Statistics, 386–9.
16
╇ In this form, apparently written by Eddie Kendricks, ‘It’s Not What You Got’ (single,
Motown Records, 1976); but note also the consequentialist, outcome-oriented ethic
in an earlier similar lyric: ‘T’ain’t what you do, it’s the way that you do itâ•›…â•›T hat’s
what gets results’. (‘Tain’t What You Do (It’s The Way That You Do It))’, James
Young and Sy Oliver), Decca Records, 1939 (Ella Fitzgerald, vocals).
226 Anthony S. Taubman

16.2 Analysing options for knowledge management in life

sciences innovation
Indeed, actual patterns of life sciences innovation – the life cycles of
real products –confute a priori assumptions of a fundamental choice
between private or public good structures, or between the impetus
of exclusive private rights or direct public interest. Actual patterns
of ownership and control of patented technology illustrate how the
grant and exercise of ‘private’ rights over IP subject matter need not
be solely or even marginally directed towards private interest: it is
increasingly inaccurate to conflate the private or exclusive nature of
IP rights with the narrow pursuit of private interest. IP management
that is solely and explicitly directed towards promoting public interest
outcomes can include defensive publication and the pre-emptive cre-
ation of a public domain (including by waiving IP rights)17, but it also
includes the judicious deployment of legal exclusions. For instance,
an IP-based right to exclude can encourage direct allocation of pri-
vate resources towards public interest outcomes or leverage access to
privately held background technologies for non-profit innovation, in
the absence of market incentives.18 Exclusive rights can be licensed
to preclude commercial use of protected materials, to promote non-
commercial creative exchange and adaptation.19 In the life sciences,
a right to exclude can be deployed to preserve open access to pre-
competitive or upstream inputs to applied or downstream research.
Thus the right to exclude can be applied judiciously to safeguard the
open quality of a shared innovative domain for agricultural biotech-
nology (exercising exclusive IP rights to preclude third parties from
excluding access to derivative outcomes).20 In this context, the dis-
tinction between an ‘open source property right’ construed as a ‘right

17
╇ See for example the public domain dedication of the Eldritch Press: ‘Eric Eldred hereby
releases any creative addition to the literary materials at the Eldritch Pressincluding
but not limited to any copyrightable compilation of materials or HTML formattingto
the public domain with a Creative Commons Public Domain Dedication.’ (at http://
creativecommons.org/licenses/publicdomain/eldred/).
18
╇ Taubman, A. Practical Management of Public-Private Alliances for Public Health Outcomes
in the Developing World: The Lessons of Access Conditions in Research and Development
Agreements, Initiative on Public-Private Partnerships for Health in Global Forum for
Health Research, Geneva, 2004. www.ippph.org.
19
╇ See for example the ‘Attribution-NonCommercial-ShareAlike 1.0’ draft license at
Creative Commons International (UK): ‘You may not exercise any of the rights
granted to You in Section 3 above in any manner that is primarily intended for or
directed towards commercial advantage or monetary compensation.’ (at http://Â�
creativecommons.org/worldwide/uk/, last visited May 14, 2005).
20
╇ See for example Biological Open Source License for Genetic Resources Indexing
Technologies at www.bios.net/daisy/GRITLicense/750/1170.html.
 Several kinds of ‘should’: the ethics of open source 227

to distribute’ rather than ‘a right to exclude’21 – while perhaps useful

and illuminating in a polemical context – cannot be maintained at a
foundational or formal level: a ‘right to distribute’ is either uncon-
ditional and unbounded, in which case it is defined by the absence
or waiver of the originator’s right to exclude; or it is conditional22 on
certain behaviour (such as granting in turn similar rights to distrib-
ute) or undertakings, in which case the IP right is exercised to exclude
other forms of distribution or other patterns of downstream use.
Standards bodies use IP licensing structures to ensure open access
to standards while encouraging technology developers to pool their
technologies for mutual benefit, such as by defining fair, reasonable
and �non-discriminatory (FRAND) terms and conditions for licens-
es.23 The claim for protection of �traditional knowledge is expressed
by some proponents, at least, as a collective right or custodial respon-
sibility to prevent illegitimate use of this knowledge, entailing the
exercise of rights to exclude third parties in the name of a public if
not the Â�public – i.e. the traditional community which maintains the
knowledge according to customary law and practice.24 Public-sector
knowledge management through the assertion of IP rights can be con-
strued as a form of privatisation of public �knowledge, or idealised as a

21
╇ Weber S., The Success of Open Source, Harvard University Press, Cambridge, 2004.
22
╇ See for example GNU General Public License (a free software, not open source
license). The Preamble explains: ‘[t]o protect your rights, we need to prevent others
from denying you these rights or asking you to surrender the rights. Therefore, you
have certain responsibilities if you distribute copies of the software, or if you �modify
it: responsibilities to respect the freedom of others. For example, if you distribute
copies of such a program, whether gratis or for a fee, you must pass on to the recipi-
ents the same freedoms that you received. You must make sure that they, too, receive
or can get the source code. And you must show them these terms so they know their
rights.’ Paragraph 8 provides: ‘You may not propagate or modify a covered work
except as expressly provided under this License. Any attempt otherwise to propa-
gate or modify it is void, and will automatically terminate your rights under this
License.’
23
╇ Concerning the resolution of conflict between the exclusivity of IP rights and open
access to standards in the United Kingdom, ‘most standards bodies include procedÂ�
ures that take IPRs into account where a standard is in the process of being drawn
up. Each participant is expected to declare at an early stage the IPRs it holds which
are (or might be) essential to the draft standard if it were to be adopted. The owner
is requested to give an undertaking in writing that it is prepared to grant irrevocable
licences on royalty-free or fair, reasonable and non-discriminatory (FRAND) terms
and conditions under such IPRs, with a waiver of copyright in documentary mater-
ial. The standards body also makes sure that the patent in question is endorsed as a
‘Licence of Right’ at the Patent Office. This ensures that licences under the patent
are available to all applicants as of right and that any disagreement of licensing terms
is subject to settlement by the Patent Office,’ Clarke M, Standards and Intellectual
Property Rights (2004), at 64.
24
╇ See Taubman A.S., Saving the Village.
228 Anthony S. Taubman

commercial patent pools:

non-exclusive push or pull based on pre-competitive
incentive mechanisms: technology platforms
prize funds, advance purchase
commitments

‘Conventional’
Conventional commercial private sector
collaboration–cross- pipeline–tight
Market orientation

‘Open source’ or public health patent pool licensing, technology vertical integration,
models with private sector downstream partnerships, joint close exclusivity
development pipeline: facilitated ventures, firms as within one firm
technology access upstream, strong technology integrators, and affiliates
commercial involvement in downstream etc.
development and dissemination

?
Public-private partnership for
neglected disease burdens
with cross-subsidisation from
‘traditional’ public sector
market product: diverse
research: noncommercial
approaches to leveraging
orientation, public domain,
exclusive rights
no downstream leverage

Exclusivity/leverage over technology

Figure 16.1 Modes of knowledge management in the life sciences

means to maintain collective public-interest control over how public

knowledge is developed and applied.
In practice, life sciences innovation practices and structures range
across an unexpectedly pluralist spectrum and a supple range of
options lying between conceptual extremes. Moving beyond the con-
ventional antinomies of public/private and exclusivity/openness opens
a stronger conceptual framework for analysing innovation structures
in the life sciences, and in turn assists in the rational choice of model
to support desired innovation and access outcomes. Actual develop-
ment and effective delivery of life sciences products to a target public
involve a diverse mix of public, private but part publicly funded, and
strictly private inputs; and the cluster of diverse technological inputs
that converges on a delivered life sciences output will be governed,
licensed and made available in diverse manners. There is rarely a one-
to-one correspondence between a patent, or a licensing model, or a
genetic input, and an actual complex product such as a new seed or
drug, which in its available and functional form will be a convergence
of inputs: genetic material, know how, foreground inventions, platform
technologies and test data. A hybrid mix of forms of knowledge man-
agement is therefore bound to be experienced: Figure 16.1 depicts how
innovation structures make use of a range of options between fully
 Several kinds of ‘should’: the ethics of open source 229

open access and exclusivity, on one axis, and between different levels
of engagement with the market on the other. The knowledge man-
agement task for the product innovator – whether public or private,
or both – boils down to determining what position on this landscape
is likely to achieve the practical outcomes desired, recognising that at
least some leverage over technology and some engagement with the
market will likely be required.
Hence the utilitarian policymaker, operating behind an ethical veil of
ignorance (with the aim of remaining disinterested and unbiased so as
optimally to promote public welfare) and a technological veil of igno�
rance (confronted with radical unpredictability and high risk levels as
to what research pathway will actually yield desired innovations, when
and how), needs to consider how to navigate these options and how to
encourage optimal behaviour on the part of innovators, assuming that
the intense level of public interest will not, politically, accommodate a
laissez-faire attitude on the part of those managing the innovation pol-
icy and legal framework. Yet a priori assumptions about the value of
specific models are unlikely to do justice to the complex assemblage of
inputs that yield the desired outcome.

16.3 Free (libre) and open source as a model for life

sciences€innovation
The call for open source innovation in the life sciences, by analogy
with free (libre) or open source software (OSFS), is a striking topical
example of the ethical ambivalence that can attach to specific models
of knowledge management. ‘Open source’ is used here as a provisional
bookmark for a cluster of conceptually linked innovation structures:25
in Figure 16.1, the open source model lies towards the left-hand side,
ranging up and down the axis of market orientations, as it accepts that a
market for derivative products may be a legitimate means of generating
the resources and the pathways to bring useful products to the market.
It is also a model that entails some limited use of a right to exclude: spe-
cifically, the exclusion of those who seek in turn to exclude. But what
kind of ethical and prudential guidance might determine the choice of
such a mechanism, and determine the specific choice of mechanism
within the cluster of possibilities?

╇ The much discussed and conceptually non-trivial distinction between ‘open source’ and
25

‘free’ software is not addressed here, not because it isn’t important, but because this
paper raises questions that would precede a close discussion of such distinctions in either
software or the life sciences. The term open source or free software (OSFS) is therefore
used henceforth to refer in general to this cluster of modes of software development.
230 Anthony S. Taubman

It’s wisest to acknowledge that mixed policy rationales are put for-
ward to argue for an open source approach to life sciences: there is no
one ethical argument that holds sway. At times, the rationale can veer
towards the logically circular, or at least pose a question-begging justi-
fication: a life sciences innovation model may be useful, ethically pro-
gressive and worth exploring for the public good, but is it open source
enough to earn that epithet? Indeed, given the cultural and social appeal
of the open source concept and the somewhat loose invocation of these
terms, a valuable – occasionally heated – debate is conducted over what
might be termed ‘identity preservation’ of various forms of OSFS, given
the risk that a potent set of ideas and norms can be reduced to a form
of social branding, rather than as a significant and distinctive form of
innovation structure. On the other hand, there may be features of OSFS
software, such as the freedom to ‘fork the code’26 that may be consid-
ered essential to a credible migration of the open source meme to the
life sciences domain.27 Yet the objective differences between software
coding and breeding plants and formulating medicines – the distinct
modes of innovation, of risk and liability management, of identifying
a ‘kernel’ or a ‘commons’, of regulating and testing technologies – can
lead practitioners to challenge ‘expectations that one size fits all’.28 In
practice, proponents and analysts of open source models do need to
operate at several analytical levels, and the call for open source R&D in
the life sciences can be framed variously as:
• a meme – a unit of social evolution29 – or as a distinct complex or
system of memes (a memeplex), conceiving open source as a cultural
community,30 as an evolving innovative culture shaped by certain
cultural norms (such as willingness to share improvements);
• a metaphor – the notion of open source in software development offer-
ing a general pattern for structuring networks of life sciences research-
ers, for instance considering access to nucleotide or peptide sequence
data as equivalent to free access to source code,31 and so on;

26
╇ See, for example, the discussion of the BiOS licence in Hope, J., ‘Open source
Â�genetics. Conceptual framework’, Chapter 12 of this volume.
27
╇ As Hope remarks (Chapter 12 of this volume) this kind of analysis should be ‘not
mere pedantry, but a question of institutional design.’
28
╇ Berthels, N. ‘Case 8. CAMBIA’s Biological Open Source Initiative (BiOS)’, Chapter
13 of this volume.
29
╇ A ‘unit of cultural transmission, or a unit of imitation’: Richard Dawkins, The Selfish
Gene, 1976.
30
╇ Levy S., Hackers: Heroes of the computer revolution, New York, 2001, commenting on
the sense of the loss of a community that triggered the free software movement.
31
╇ See The Open Source Definition (Annotated), Version 1.9 (July 24 2006), at www.
opensource.org/docs/definition.php.
 Several kinds of ‘should’: the ethics of open source 231

• more formally, a model or template – open source licensing structures

or similar contractual mechanisms granting access on the condition
of reciprocal access applied mutatis mutandis to life sciences research
and development;
• a badge of ethical approval – affirming an inherent ethical value in
open source behaviour.
Its attractive brand presence could lead to ‘open source’ being loosely
applied to any kind of life sciences innovation one happens to prefer,
provided it falls short of the exclusive exercise of intangible property
rights: a badge of approval or commendation for deciding not to exer-
cise rights exclusively. Hence the ethical basis for such advocacy may
range from the strictly utilitarian – it just works better – to something
approaching an aesthetic of innovation – ‘open source’ as a kind of hip/
geek T-shirt slogan.32 The open source model could become an end in
itself, acquiring an intrinsic ethical or even aesthetic validation. But
without denying its social or cultural component, surely the policy
rationale for OSFS development is more compelling when phrased in
strictly utilitarian terms: it is ultimately ‘better’ and worth advocating
as a mode of innovation when and if it works better for its ostensible
objectives, more so than when we approve of it or when it conforms with
an abstract model. This suggests that the open source concept would be
more productively employed as a heuristic for innovation pol�icymakers;
advocacy of consciously disruptive models in the life sciences would
evolve into a program of harvesting empirical lessons from successful
forms of collaborative innovation in the software domain, with a focus
on how to make life sciences innovation work better, work more effi-
ciently, and/or work more fairly (in short, ‘from concepts to cases’).
In describing the practical, heuristic character of open source inno�
vation, for instance, the BiOS FAQ expands: ‘people don’t just provide
solutions; they provide an understanding of how the solution was devel-
oped and a way that the solution can be modified to suit other people’s
needs, and used to develop products. In reality, the concept of open
source applies to anything that requires a meeting of innovative minds.’
This analysis could be equally applied at a broader level to transfer-
ring ‘understanding how the solution was developed’ from one sector

╇ An analogy may be drawn with the assertion of Creative Commons licences in good
32

faith but for social branding purposes technically at odds with the actual content
Â�concerned – which in the author’s experience has included Creative Commons
licences over fully public domain patent documentation (entailing the effective
assertion of copyright) and over text (‘available for widescale, free, non-commercial
Â�reproduction’) protected by technological protection measures through a paid-for
password (on file with the author).
232 Anthony S. Taubman

of innovation to another. Yet the essential conundrum remains: how

to avoid the constraints of a ‘naïve expectation that one size fits all’,33
while porting coherent and useful lessons that are ‘sector agnostic’ to
the aid of socially beneficial life sciences research? It is submitted that
the preferred analysis should be pragmatic – guided by the practical-
ities of constructing a functional innovation platform for a given field of
technology, and assessed ultimately according to its utilitarian impact.
In establishing an ethical framework for open source in the life sci-
ences, a key consideration, with bioethics and broader utilitarian
aspects, has been where to draw the line between the information that
should remain freely available (subject to privacy and other ethical con-
cerns from the point of view of the providers or subjects of especially
human genetic data)34, and what should be considered legitimately
‘proprietary’: what is the upstream material that goes into the pool, and
what is a legitimate derivative product that (i) can, ethically, be com-
mercialised by one firm exclusively and (ii) should, pragmatically, be
open to exclusive appropriation by a firm as the most effective form of
engaging market incentives to bring a downstream product to the pub-
lic. These broader ethical and more narrow utilitarian considerations
converge when the judgement is made that genetic information should
intrinsically be considered in the public domain, because of fundamen-
tal ethical considerations but also because of the pragmatic assessment
that such information should be considered ‘pre-competitive’ – in other
words, ethical and utilitarian concerns led to the view that the provi-
sion of raw genetic data shouldn’t be a business model in itself. The
SNP Consortium, which was formed and funded by major private and
public actors in 1999, subsequently delivered some 1.8 million single
nucleotide polymorphisms (SNPs) into the public domain.35 The utili-
tarian rationale for this pre-competitive collaboration was expressed in
utilitarian terms:
The members of The SNP Consortium will be able to create a commonly
accepted SNP map more quickly, and with shared financial risk and less
duplication of effort than if each company proceeded on its ownâ•›…â•›t he map
that will be constructed will be of greater density and therefore �potentially

33
╇ Berthels, N. ‘Case 8. CAMBIA’s Biological Open Source Initiative (BiOS)’, Chapter
13 of this volume.
34
╇ The fact that genomic epidemiological research is so far upstream in the pipeline of
therapy development has implications for the privacy rights of research participants
and for a rigorous definition for prior consent, particularly in resource-poor settings.’
(Chokshi D and Kwiatkowski D, ‘Ethical Challenges of Genomic Epidemiology in
Developing Countries’, 1 Genomics, Society and Policy, 2005, 1.)
35
╇ Now accessible at www.ncbi.nlm.nih.gov/SNP/.
 Several kinds of ‘should’: the ethics of open source 233

greater utility to the pharmaceutical industry than SNP maps currently

available.36

But competition and the assertion of patent rights were considered

legitimate, indeed desirable, for downstream innovations derived from
the open SNP data,37 as a means of delivering useful finished prod-
ucts to the public, building on the pre-competitive substrate. The SNP
Consortium itself filed patent applications and obtained a defensive
registration as means of leveraging continued open access.38
Yet too strict a consequentialist account may end up placing exces-
sive emphasis on short-term outcomes, overlooking the value of invest-
ing in technology platforms and information tools such as the SNP
map. The SNP map could not of course yield useful medical products
in itself and has contributed, for instance, to the International HapMap
Project,39 identifying haplotypes and enabling association studies,
which ‘will benefit human health by providing an extensive resource
that researchers can use to discover the genetic variants involved in
disease and individual responses to therapeutic agents. Once such vari�
ants have been discovered, researchers can learn much more about
the �origins of illnesses and about ways to prevent, diagnose, and treat
those illnesses,’ thus contributing further to a common platform for the
ultimate delivery of new treatments, but still an interim step with its
utility to be assessed in such terms.
Hence, given the long lead-times, progressive construction of tech-
nology platforms, and complex integration of diverse inputs required to
yield new life sciences inputs – as well as a healthy experimental need
for trial and error – a utilitarian argument may also be made for inter-
ventions that open up new pathways and structures for innovation as
ends in themselves, even before tangible products are yielded.
It is inherently improbable that any broadly defined mechanism is
likely to serve as the optimal, exclusive pathway for all innovation pro�
cesses within any sector of life sciences, and the invocation of alternative
pathways increases the need for a clear framework for assessing these

36
╇ ‘Frequently Asked Questions,’ The SNP Consortium, at http://snp.cshl.org/about/
faq.shtml, last visited 13 March 2005.
37
╇ Chokshi D and Kwiatkowski D, at 8.
38
╇���������������������������������������������������������������������������US patent applications 20060057564, 20030204075 and 20020198371 (all aban-
doned as applications before grant), and statutory invention registration (SIR)
H2,191, June 5, 2007 held by SNP Consortium (the SIR is a registration which ‘has
the defensive attributes of a patent but does not have the enforceable attributes of a
patent’, 35 U.S.C. 157).
39
╇ The International HapMap Consortium, ‘The International HapMap Project,’ 426
Nature, 18 December 2003, 789.
234 Anthony S. Taubman

options and for constructing appropriate forms of regulatory interven-

tion to optimize the welfare impact of life sciences research and develop-
ment. Equally, however, invoking new models for innovation may divert
attention towards a relatively abstract discussion about models, and
away from fundamental technical obstacles to creating beneficial new
products: the view of open source as ‘magic pixie dust’,40 that it will in
itself yield solutions. When transferring the OSFS meme to life sciences,
a key stumbling block is that of false analogising: biotechnology differs
fundamentally from software development in key ways, discussed below.
Yet several factors may predispose the analyst to a stronger ethical basis
for ‘open’ models in the life sciences than in software: it concerns basic
human needs and welfare; public funds account for a significant propor-
tion of research; there are stronger ethical, safety, and environmental
concerns, as well as more acute ethical concerns about the obtaining and
exercise of patenting technology in this domain, including also the clus-
ter of issues concerning equity and prior informed consent for ge�netic
inputs to research, which broaden into a North-South political and trade
debate. And there is only one operating system; one can’t invent around
DNA chemistry nor develop a functional alternative to a gene.
The underlying question, then, is whether ‘open source’ is a coherent
and enabling concept for biotech innovation: is it a badge of approval
for behaviour we like, or can the experience of open source software
development act as a heuristic for the construction, analysis or retro-
spective validation of distinct forms of research and development in the
life sciences? And if ‘open source’ or ‘free’ life sciences innovation can
be coherently characterised as a distinct mode, is the rationale for pur-
suing this mode one of inherent self-interest (it works for the innovator)
or a moral duty (it works for society)?
More generally, how to characterise the inducement or the obligation
to pursue open source innovation, drawing on the experience (or culture)
of open source software development? Some common themes emerge:
the notion of collaborative but distributive fashioning of technological
platforms for downstream innovation; the contrast between source code
and finished products, and between the free use of pre-competitive
information and a competitive market for derivative products; an ethic
of distributive equity in the share of derivative benefits and resistance to
exclusive appropriation of benefits from platform technologies; the goal
of freedom to use or operate as against tight structures of vertical or
horizontal technological integration, backed by ethical expectations of
freedom to use or experiment; and the use of viral licensing techniques

40
╇ Zawinski J, Resignation and Postmortem, 1999 jwz@jwz.org.
 Several kinds of ‘should’: the ethics of open source 235

to sustain freedoms in derivatives or applications of core technology. In

both spheres, the model is driven partly by a meme of a golden age of
technological freedom (whether it is open software development, or free
exchange of genetic materials such as seeds), contrasted with the rise
of the dominant industry behemoth (software giants, seed multination-
als), and the appeal to bridge a technological divide (digital or biotech-
nological), and to democratise the innovation process. In both spheres,
too, the boundary between technology user and innovator blurs – what
Lessig construes as ‘read-write culture’.41 But, crucially, in each case
the open or free innovation structure is technology driven – the rights
associated with a ‘core’ or original or ‘platform’ technology are asserted
to leverage continuing access to derivative uses or adaptations of that
technology, which itself is progressively improved. Ultimately, the most
robust and persuasive inducement to enter the open source structure
will be nothing more abstract than access to useful technology.
Important contrasts between these two fields suggest caution in too
immediate an appeal to an OSFS model for the life sciences. First, the
research and development dynamic is objectively different, as is the
economic and commercial background. And the structure of liability,
social responsibility and public interest regulation differ dramatically:
‘viral dissemination’, ‘bug fixing’ and the ‘blue screen of death’42 take
on dramatic import in the life sciences. A buggy first version of Linux
can be benignly released to the hacker community’s bazaar43 for Linus’s
law44 to do its therapeutic work on the code, but the release of a buggy
open source vaccine or drug could yield a public health crisis: in life

41
╇ Lessig, The Read-Write Society, Keynote Address, Wizards of OS4, 15 September
2006, at http://wizards-of-os.org/index.php?id=2322
42
╇ http://bsods.com/.
43
╇ ‘In the cathedral-builder view of programming, bugs and development problems are
tricky, insidious, deep phenomena. It takes months of scrutiny by a dedicated few to
develop confidence that you’ve winkled them all out. Thus the long release intervals,
and the inevitable disappointment when long-awaited releases are not perfect. In the
bazaar view, on the other hand, you assume that bugs are generally shallow Â�phenomena€–
or, at least, that they turn shallow pretty quickly when exposed to a thousand eager
co-�developers pounding on every single new release. Accordingly you release often in
order to get more corrections, and as a beneficial side effect you have less to lose if an
occasional botch gets out the door.’ (‘Release Early, Release Often’ in Raymond E., The
Cathedral and the Bazaar, Thyrsus Enterprises, <thyrsus.com>, version 3.0 (2000)).
44
╇ ‘Linus [Torvalds] was directly aiming to maximize the number of person-hours
thrown at debugging and development, even at the possible cost of instability in the
code and user-base burnout if any serious bug proved intractable. Linus was behav-
ing as though he believed something like this: Given a large enough beta-tester and
co-developer base, almost every problem will be characterised quickly and the fix
obvious to someone. Or, less formally, ‘Given enough eyeballs, all bugs are shallow.’
I dub this: ‘Linus’s Law’’ (ibid.).
236 Anthony S. Taubman

�
sciences innovation, there is often little clear distinction between man-
agement of IP and management of liability. The kind of broad disclaim-
ers typically found in software licensing (open source, free or otherwise)
could not be sustained for much life sciences innovation.
If open source licensing indeed pivots on a ‘right to distribute’,45 pub-
lic health and environmental regulation – and diffidence about ‘viral
dissemination’ not only of licensing structures but also of public Â�liability
– may inhibit free use and dissemination of life sciences technologies
exactly as they close in on offering tangible public welfare – as usable
products in the hands of the public. A true ‘open source’ approach to
life sciences innovation may need to address the contentious question of
what competitive relationship should exist between the originators and
users of test data (such as clinical trial data); a hard open source read-
ing may entail access to competitors’ full regulatory dossiers by analogy
with ‘derived works’;46 as a product moves from the lab bench to the
dispensary, the open source design would need to make choices on the
economics of clinical trials, not merely proof of concept. It would have to
address, too, another distinctive characteristic of life sciences innovation
today: the claim for actual property rights or quasi-property rights over
non-inventive inputs into the research, in the form of genetic material,
or what Kloppenburg termed ‘a form of national property’.47 In short, if
the value of the model is to be assessed from a complex ethical frame-
work that links the need to accommodate interests and equities reaches
further upstream and downstream than the software model.
Without overplaying such resonances, IP law and practice already
offers several tools that could be deployed in open source or free life
sciences innovation structures. Past examples exist of the open dissem-
ination of research tools through non-exclusive, accessible licensing; of
cross-licensing structures that maintain collective access to improve-
ments; of collective undertakings to maintain free access to genomic
information as a ‘pre-competitive’ foundation for derivative innovation.
Patent law requires full enablement disclosure, so that ‘source code’ –
potentially including physical specimens of microorganisms – can’t in
principle be locked up, but must be available to the researcher; rights to

45
╇ Weber S., The Success of Open Source, Harvard University Press, Cambridge, 2004.
46
╇���������������������������������������������������������������������������������Open Source Definition, para 3: Derived Works: ‘The license must allow modifica-
tions and derived works, and must allow them to be distributed under the same terms
as the license of the original software. Rationale: The mere ability to read source isn’t
enough to support independent peer review and rapid evolutionary selection. For
rapid evolution to happen, people need to be able to experiment with and redistribute
modifications.’
47
╇ Kloppenburg, J., First the seed: the political economy of plant biotechnology, 1492–2000,
Cambridge: Cambridge University Press, 1988.
 Several kinds of ‘should’: the ethics of open source 237

research and experiment and the breeder’s exception open up deriva-

tive uses of protected subject matter; the compulsory cross-licensing
provisions of the EU Biotechnology Directive and the law of ‘dependent
inventions’ amount to ‘rights to use’ patented technology, roughly akin
to freedom to use derivative innovations.
These sketchy imprints of the software ‘freedoms’ or elements of
open source even within the existing legislative structure recall the
ambivalence about the level of address to policymakers: does the
search for reformed innovation structures entail fundamental legis-
lative reform, even treaty renegotiation; or reframing public-policy
and public-�interest interventions such as research funding and public
research �policies; or addressing the choices by individual researchers,
institutions and firms. At the broadest international level, the objective
for IP �protection expressed in the WTO TRIPS Agreement poses an
ethical and legal challenge: protection of IP ‘should contribute to the
promotion of technological innovation and to the transfer and dissem-
ination of technology, to the mutual advantage of producers and users
of technological knowledge and in a manner conducive to social and
economic welfare, and to a balance of rights and obligations’. It is dif-
ficult to take issue with this statement of a broad objective. Within this
legal text, it surely guides the interpreter of the treaty to an inclusive
view of public policy interests. But within the broader policy context,
is it also a guide to the policymaker – an ethical heuristic? Hence, what
kind of specific obligations might this suggest for those actively engaged
in structuring the innovation infrastructure? To deliver on this promise
for IP Â�protection€– and setting aside questions of formal treaty inter-
pretation – there are many ways of construing this ‘should’: is it ethical
in a deontological sense, expressing a duty incumbent on those engaged
in protecting IP48 or in a utilitarian sense, setting a test for legitimacy
of policy choices within the TRIPS framework; is it consequentialist,
providing a benchmark for the legitimacy of the actual outcomes of
policymaking; or is it limited in ethical guidance, being strictly legal
in character, establishing a formal obligation on policymakers bound
by the treaty; or is it simply aspirational, more apposite for a preamble;
or, most tantalising, is it predictive – a statement that the application
of well-balanced IP mechanisms, implemented in line with the ensuing
detailed standards, will a fortiori yield this outcome? In practice, this

╇ Recalling that TRIPS elsewhere views ‘protection’ in expansive terms as including
48

‘matters affecting the availability, acquisition, scope, maintenance and enforcement

of intellectual property rights as well as those matters affecting the use of intellectual
property rights specifically addressed [in TRIPS].’ (footnote to Article 3).
238 Anthony S. Taubman

chapter may conflate into a general test of legitimacy, so flexible as to

provide support for many diverse actual dispensations.
Similarly, although the frame of reference is more focused, it remains
difficult to pin down a precise ethical basis to support the choice of
innovation structures in the life sciences. If it is considered desirable to
encourage the adoption of ‘open source’ or free innovation in the life
sciences, what kind of ethical or legal argument applies?
• enlightened self interest: it is good for you, it is a more efficient form
of innovation that better serves your objective interests;
• ethical duty: you should behave this way, because it is inherently right
to do so: perhaps because you would wish others to offer you the ‘four
freedoms’,49 and so the Kantian categorical imperative applies;
• strict utilitarian: it yields improved welfare outcomes for society
overall;
• legal – you must do it by law, whether or not it is in your real or per-
ceived interests, because of obligations either within IP law �(noting the
imprints of openness or freedoms found in IP law) or beyond IP law
(such as the invocation of human rights or equitable �obligations).
Each form of compulsion has been urged for ‘open source’ or free
approaches to life sciences innovation. But does the nature of the
‘should’ depend on who and where you are? Recall that the essence of
IP policymaking is setting what legally defined exclusivities over know-
ledge resources will advance innovation, fair competition and public
welfare, and how those exclusivities should be shaped and governed.
Some ‘open source’ ideas and some freedoms are hard-wired at the
legislative level (or at least they can be) – this is at least the spirit of the
enabling disclosure, for example, and the term limit on patents (I am
not arguing that close congruence exists, not by any means, but iden-
tifying limited points of convergence). Individual holders of exclusive
rights are also presented with a range of obligations – ethical and legal –
and both self interested and altruistic motivations. A complete analysis
of a reformed innovation infrastructure in the life sciences would need
to consider firstly how to promote the overall goals of innovation policy
(broadly, both beneficial innovation and equitable access to the fruits of
that innovation) within IP law, as a legal system; and secondly, to pro-
mote greater convergence with these goals of the actual outcomes from

49
╇�������������������������������������������������������������������������������� By analogy with the freedoms identified by Stallman – the freedom to run a pro-
gram; the freedom to study how it works through access to the source code; the
freedom to redistribute copies; and the freedom to improve and distribute improve-
ments (Stallman R. The Free Software Definition, 1996, www.fsf.org/philosophy/
free-sw.html).
 Several kinds of ‘should’: the ethics of open source 239

that system; and third, what modes and structures would most pro-
ductively draw together providers/users of technologies, including the
use of literal or metaphorical open source and free structures, so that
their real and perceived interests, and the way those interests are pur-
sued. This would close the ethical gaps between a hard consequential-
ist account (attaching value only to beneficial outcomes), deontological
ethics or the ethics of doing one’s duty (so that the ethically approved
forms of behaviour do actually yield the desired outcomes), and legally
permissible forms of IP and exercise of IP right.

16.4 Concluding comment: situating the hospital and the

granary between the cathedral and the bazaar
This discussion aims to illuminate pathways towards practical answers
for the following core questions for life sciences policymakers:
(i) Is the only irresistible impetus to ‘open source’ or free in life
�sciences ultimately technological? Does leverage work essentially
because the core (or seed) technology is so good – functionally
good or economically attractive – or even effectively indispensable,
in the case of unique research tools? Or is it a negative incentive –
technology holdings stack up so that practical implementation of
proprietary technology is literally unworkable (as occurred in the
SNP case)? If the technology is the draw card, then the objective
rationale for free/open life sciences may be circular, or recursive:
as increasingly valuable technology is placed within this frame-
work, the incentive to use the framework is strengthened. Looking
back at the software example, Raymond suggests that a techno-
logical seed is essential: ‘… one cannot code from the ground up in
bazaar style. One can test, debug and improve in bazaar style, but
it would be very hard to originate a project in bazaar mode. Linus
didn’t try it. I didn’t either. Your nascent developer community
needs to have something runnable and testable to play with.’50
(ii) Are the hospital and the granary neither ‘cathedral’ nor ‘bazaar’?
Although in silico and in vitro research pathways may cross and
merge, the kind of life sciences research and development that
moves close to delivering practical products differs in key ways
from software development. ‘Release early and release often’51 is
unappealing for a new cox-2 inhibitor or glyphosate-resistant seed.

50
╇ ‘Necessary Preconditions for the Bazaar Style’ in Raymond E., The Cathedral and the
Bazaar, Thyrsus Enterprises, <thyrsus.com>, version 3.0 (2000).
51
╇ ‘Release Early, Release Often’ in Eric Raymond, The Cathedral and the Bazaar.
240 Anthony S. Taubman

And this is not merely a regulatory matter: it also concerns dif-

ferent needs for resources, infrastructure, ethical constraints and
liability and risk management.
(iii) How to learn from and apply a technology-specific innovation
model to a new field? Does one empirically reverse engineer ‘open
source’ or free biotechnology from what has been shown to work
in existing life sciences research, and port across models or even
license text from the software field, or does one invoke models in
the abstract, driven by ethical and broader considerations? If each
of these three sources and approaches impels the review process,
how does one absorb and integrate these disparate ideas and expe-
riences while continuing to prioritise public interest objec�tives
over particular models?
‘Open source’ or free research models offer pathways towards democra-
tised innovation – democratised in participation, in its pluralistic direc-
tions, and in the distribution of opportunities and benefits. As broad
models, they have resonances with long practice in many innovative
contexts: many traditional or local technology users have long been
read-write innovators. These models touch on issues that are of imme-
diate concern for life science policymakers aiming to advance the pub-
lic interest: reducing transaction costs for the creation of the bundles
of technology and other inputs that define new life sciences products;
broadening the scope of innovation to meet neglected needs; and for
developing countries especially, strengthening domestic technological
capacity and, where sought, technological autonomy and self-reliance.
But the prudent policymaker – with much at stake – will need a
stronger objective base to work from, rather than reacting to propri-
etary models that are aggressively pursued by their principal corporate
beneficiaries. Crafting innovation policy is broader in sweep than cre-
ating an asylum from monopolistic excesses, which can and should in
any case be regulated directly. Open source or free innovation models
in the life sciences may be understood and integrated within develop-
ment strategies inasmuch as they confer systemic benefits. Failure to
democratise innovation is not exclusively an artefact of the proprietary
nature of rights over technology (system and application software) –
the most neglected communities and obvious failures of innovation to
deliver are situated where proprietary rights either do not exist or are
practically unenforceable. Our natural, polemical tendency to structure
debate through polarities might also overshadow the need to understand
the complex interplay between proprietary and non-proprietary models
of innovation and product development on a broader planning canvas
 Several kinds of ‘should’: the ethics of open source 241

when looking at the life sciences in the round – basic human needs and
the production of public knowledge goods are most unlikely to be met
exclusively through proprietary or non-proprietary approaches. The
‘open source’ debate in the life sciences is therefore valuable in exposing
the weakness of this polarisation: exclusive or proprietary rights can be
used to leverage access, to promote dissemination, to safeguard down-
stream use rights: the notion of promoting access through rights that
exclude is indeed the underlying paradox of IP law and policy.
Whether and how benefits are obtained in practice depends on how
skilfully any model is actually deployed and judiciously adapted, and
on skills, resources and infrastructure: no innovation model or licens-
ing structure is magic pixie dust; perhaps the single most damaging
step a legal advisor can offer a research project is to reach for her folder
of licensing precedents, as a shortcut for an objective appraisal of what
broader goals the management of knowledge within the research pro-
gramme should serve. Any viable open source project in the life sciences
is likely to need good core technology and good technologists, clearly
an abiding strength of reported open source software projects, and the
innovation structure – including its formal legal underpinnings€– will
be built around what forms of interaction work best for the community
of researchers and users (including those users who become sources
of incremental innovations). The dissemination and analysis of mod-
els and metaphors can, nonetheless, stimulate new innovation practices
and structures.
Even so, it is not a compelling need in life sciences innovation simply
to construct, analyse and defend new or alternative innovation models
for the sake of it; the core policy demands are to enhance, accelerate,
decentralise and democratise life sciences innovation, to develop and
disseminate more and more diverse useful products to wider groups
of beneficiaries, and to reduce barriers to entry for researchers and to
broaden the conception of research (for instance so that traditional
medicine practitioners are recognised as true research partners in med-
ical R&D52 and so that the role of farmers in agricultural innovation
and crop improvement is more systematically recognized53). ‘Open

52
╇ See, for instance, the Indigenous Knowledge Systems policy of the South African
government and its application by the Medical Research Council.
53
╇ Consistent also with the articulation of farmers’ rights in the FAO International
Treaty on Plant Genetic Resources for Food and Agriculture (Article 9), recognizing
‘the enormous contribution that the local and indigenous communities and farmers
of all regions of the world, particularly those in the centres of origin and crop diver-
sity, have made and will continue to make for the conservation and development of
plant genetic resources which constitute the basis of food and agriculture production
throughout the world.’
242 Anthony S. Taubman

source’ – and any other model – is not an end in itself, but should create
pathways to better use of resources to meet more widespread needs. It
may help break down illegitimate barriers and overcome poor, overly
constricted approaches. But a fully equitable disposition of knowledge
goods probably also requires the currently dispossessed acquiring some
control afforded by proprietary structures or exclusive rights, to lever-
age their interests more effectively than purely through moral suasion
and the expected benefits of technological diffusion. The open source
debate in the life sciences is a reminder that, pragmatically, but also for
the best ethical reasons, some degree of leverage over technology – even
the use of exclusive rights to exclude overly exclusionary practices so as
to protect a commons, or to sustain an enabling technology platform,
is necessary.

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Berthels, N. ‘Case 8. CAMBIA’s Biological Open Source Initiative (BiOS)’,
Chapter 13 of this volume
Clarke, M., Standards and Intellectual Property Rights, 2004
Dawkins, R., The Selfish Gene, 1976
Horst, A.â•›C., International Property Rights Index (IPRI), 2007 Report
(www.InternationalPropertyRightsIndex.org)
Horwitz, S., ‘From Smith to Menger to Hayek: Liberalism in the
Spontaneous Order Tradition’, 6 The Indep. Rev. 1, 2001, 81.
Hope, J., ‘Open source genetics. Conceptual framework’, Chapter 12 of this
volume.
The International HapMap Consortium, ‘The International HapMap
Project’, 426 Nature, 18 December 2003
Kilcullen, J., Rawls: The Original Position, Macquarie University, 1996
(www.humanities.mq.edu.au/Ockham/y64l13.html
Kloppenburg, J., First the Seed: the Political Economy of Plant Biotechnology
1492–2000, Cambridge: Cambridge University Press, 1988.
Levy, S., Hackers: Heroes of the computer revolution, New York, 2001
Ley, E., ‘On the Private Provision of Public Goods: A Diagrammatic
Exposition’, 20 Investigaciones Economicas 1, 1996, 105–23, at
IMF, Washington DC, (http://econwpa.wustl.edu/eprints/pe/
papers/9503/9503001.abs)
Martin, G., Sorenson, C. and Faunce, T., ‘Balancing intellectual monopoly
privileges and the need for essential medicines’, 3 Global Health 4, 2007.
Plato, Protagoras (translated, Benjamin Jowett, at 310d).
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2000
Rawls, J., A Theory of Justice, Harvard University Press, 1971
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Samuelson, P.â•›A ., ‘The Theory of Public Expenditure’, 36 Review of Economics

and Statistics, 1954, 386–389.
Smith, A., An Inquiry into The Nature and Causes of the Wealth of Nations,
Henry Frowde ed., Oxford Univ. Press, 1909, 1776
Stallman R., The Free Software Definition, 1996 (www.fsf.org/philosophy/
free-sw.html)
Taubman, A. Practical Management of Public-Private Alliances for Public
Health Outcomes in the Developing World: The Lessons of Access Conditions
in Research and Development Agreements, Initiative on Public-Private
Partnerships for Health in Global Forum for Health Research,
Geneva,€2004
â•… ‘Saving the Village: Conserving Jurisprudential Diversity in the
International Protection of Traditional Knowledge’, in Keith E. Maskus
and Jerome H. Reichman (eds.), International Public Goods and Transfer of
Technology Under a Globalized Intellectual Property Regimen, 2005, 521.
Weber, S. The Success of Open Source, Harvard University Press, Cambridge,
2004.
Zawinski, J. Resignation and Postmortem. 1999 (jwz@jwz.org).
Part IV

Liability regimes
17 Pathways across the valley of death
Novel intellectual property strategies for
accelerated€drug discovery

Arti K. Rai, Jerome H. Reichman,

Paul F. Uhlir+ and Colin Crossman*

17.1 Introduction
Most therapeutic interventions produced by pharmaceutical firms
take the form of small molecule drugs,1 which are mass produced at
low marginal cost and ingested orally. Drug therapies typically work
by affecting the activity of human proteins, known in the industry as
targets,2 that have been implicated in disease pathways. Thus far, med-
ical science has identified safe and effective therapies for only a few
hundred of the estimated 3,000 protein targets in the human genome
that are potentially susceptible to a drug.3 Moreover, pharmaceutical

+
╇ The views expressed here are those of the author and not necessarily of the National
Research Council or the National Academies.
*╇
This chapter is reprinted with permission from the Yale Journal of Health Policy, Law,
and Ethics. It originally appeared in the January 2008 issue of that journal (Vol. 8, no.€1,
1–36).The authors gratefully acknowledge the support of the National Human Genome
Research Institute and the Department of Energy under Grant No. 5P50 G003391–02.
Earlier versions of this article were presented at Harvard Law School, Northwestern
University Law School, and at the Catholic University of Leuven, Belgium. We thank
Funmi Arewa, Christopher Austin, Dan Burk, Bob Cook-Deegan, Einer Elhauge, Terry
Fisher, Mark Guyer, Regina Herzlinger, Christopher Lipinski, Allen Roses, Geertrui
Van Overwalle, and Christen Linke Young for helpful discussions, Derek Tan for his
exceptional comments, and Jennifer Giordano-Coltart for exceptional research assist-
ance. We also thank the students in Professor Elhauge’s fall 2006 Health Policy seminar
and Professor Arewa’s fall 2007 Intellectual Property seminar for their comments.
1
╇ We use the term “small molecule” to distinguish that class of compounds that can alter the
activity of DNA or proteins but are not themselves proteins, peptides, or nucleic acids.
2
╇ Ideally, potential targets would include not only individual proteins but also protein-
protein interactions. See Arkin, M.R. and Wells, J.A. ‘Small-Molecule Inhibitors of
Protein-Protein Interactions: Progressing Towards the Dream’, 3 Nature Revs. Drug
Discovery 301 (2004).
3
╇ Whitty, A. and Gnanasambandam Kumaravel, ‘Between a Rock and a Hard Place?’,
2 Nature Chemical Biology 112, 112 (2006) (giving an estimate of about three hundred
proteins); Russ, A.P. and Stefan Lampel, ‘The Druggable Genome: An Update’, 10
Drug Discovery Today 1607 (2005). Under the definition used in this Article, sus-
ceptibility to a drug, or “druggability,” is defined by whether the protein is capable

247
248 A. K. Rai, J. H. Reichman, P. F. Uhlir and C. Crossman

firms have encountered major obstacles in producing fundamentally

new small molecule drugs, especially those that work against new tar-
gets. According to one report, an average of only three drugs that act on
novel targets have reached the market annually in recent years.4
This highly visible problem has attracted commentary in scholarly
articles,5 government white papers6 and the popular press.7 Government
agencies, such as the National Institutes of Health,8 and industry
insiders,9 have also recognized that one of the most serious pitfalls
involves the difficulty of moving across the so-called “valley of death”
that separates upstream research on promising genes, proteins and bio-
logical pathways from downstream drug candidates. For example, an
upstream finding that a given protein is differentially expressed in indi-
viduals with a particular disease may suggest that the protein merits
further investigation. However, much more work (especially medicinal
chemistry) is necessary to determine how good a target the protein
really is and whether a marketable drug candidate that affects the activ-
ity of the protein is likely to be developed.
As industry observers have noted, successfully translating upstream
research into potential drugs will require experimentation with new

╇of �binding a chemical compound. This definition does not address the question of
whether the binding will yield a result that is biologically useful.
4
╇ See Zambrowicz, B.P. and Arthur T. Sands, ‘Knockouts Model the 100 Best-Selling
Drugs – Will They Model the Next 100?’, 2 Nature Revs. Drug Discovery 38, 39 (2003);
see also US Gov’t Accountability Office, New Drug Development: Science, Business,
Regulatory, and Intellectual Property Issues Cited as Hampering Drug Development
Efforts 1 (2006) [hereinafter GAO Report], available at www.gao.gov/new.items/d0749.
pdf (stating that FDA submissions for new chemical molecules have generally declined
since 1995, even though industry research and development increased 147% in infla-
tion-adjusted dollars between 1993 and 2004). New chemical molecules are drugs
that differ fundamentally in structure from prior molecules. They are, therefore, the
type of drugs that are most likely to be active against new targets (or show substan-
tially increased efficacy against old targets).
5
╇ See, e.g., Cockburn, I.M., ‘The Changing Structure of the Pharmaceutical Industry’,
Health Aff., Jan–Feb 2004, at 10, 11; Cohen, F.J., ‘Macrotrends in Pharmaceutical
Innovation’, 4 Nature Revs. Drug Discovery 78 (2005); Service, R.F., ‘Surviving the
Blockbuster Syndrome’, 203 Science 1796 (2004) (discussing low numbers of new
chemical entities approved in recent years).
6
╇ See, e.g., US Food & Drug Admin., Innovation or Stagnation: Challenge and
Opportunity on the Critical Path to New Medical Products (2004), available at www.
fda.gov/oc/initiatives/criticalpath/whitepaper.pdf.
7
╇ See, e.g., ‘Billion Dollar Pills’, The Economist, 27 January 2007, at 69, 70 (“With its
traditional approach, Big Pharma is not coming up with new drugs fast enough to fill
its pipeline.”).
8
╇ See, e.g., Austin, C. et al., ‘NIH Molecular Libraries Initiative’, 306 Science 1138
(2004); see also GAO Report, above note 4, at 40 (noting importance of “translational
medicine” for addressing the drug discovery problem).
9
╇ See, e.g., Lipinski, C.A., ‘The Anti-Intellectual Effects of Intellectual Property’, 10
Current Opinion in Chemical Biology 380 (2006).
 Pathways across the valley of death: IP strategies 249

models of R&D.10 In this article, we propose one such initiative: intensive,

large-scale collaboration between academics, who possess unique skills
in designing assays that can identify promising targets, and pharmaceut-
ical firms that hold libraries of potentially useful small molecules as trade
secrets, making them largely off limits to these same academic scientists.
As we discuss below, conventional patent-based strategies for com-
mercialization of university research, of the type envisioned by statutes
like the Bayh-Dole Act of 1980,11 are unlikely to foster such intensive
collaboration. Moreover, while R&D alliances between small biotech-
nology firms and large pharmaceutical companies can perhaps fill
some of the collaboration gap, thus far these vertical alliances have not
appreciably stimulated productivity in the area of small molecules.12 To
achieve the goal of inducing more well-trained “eyes” to search chem-
ical space for useful molecules, we need a contract-based platform that
makes these molecules broadly available to academic experts without
compromising future patents.
The collaborative initiative we propose takes its inspiration from
existing horizontal collaborations between pharmaceutical firms, which
focus on identifying markers of drug safety and efficacy. However, our
proposed effort aims to identify potential drugs that may someday reach
the market and generate revenue. We therefore need to define owner-
ship more deliberately than do current collaborations, which focus on
information that is generally considered pre-competitive at all stages.
Although firms would not bring specific patents to the table ex ante (as
they do, for example, in most vertical R&D alliances between smaller

10
╇ See, e.g., DataMonitor, Addressing Pharma’s R&D Productivity Crisis: Technical
and Strategic Initiatives To Improve Core Drug Discovery Capabilities, www.market-
research-report.com/datamonitor/DMHC1960.htm (last visited 2 November€ 2007)
(noting that “[c]ompanies must fundamentally review R&D business models and
exploit new strategies for re-establishing core drug discovery expertise”).
11
╇ Bayh-Dole Act of 1980, Pub. L. No. 96–517, 94 Stat. 3015 (codified as amended at
35 U.S.C. §§ 200–212 (2000)).
12
╇ These alliances have been more successful in increasing productivity in the area of
biological macromolecules (a class of specialty drugs known as “biologics”) like pro-
teins and large peptides. See Cockburn, above note 5, at 12, 14; Service, above note 5,
at 1797–8. However, such biologics are expensive to develop and hence quite costly to
patients (with prices ranging from thousands to hundreds of thousands of dollars for
an annual supply). Moreover, the absence of a generic regime for biologics, see below
note 29, means that their prices do not decrease to any meaningful extent even after
patents expire. See, e.g., Anand, G., ‘As Costs Rise, New Medicines Face Pushback’,
Wall St. J., 18 September 2007, at A1 (making these points and noting that spending
on specialty drugs rose 21% in 2006, as contrasted with 6% for non-generic, non-
specialty (e.g., small molecule) drugs); Anand, G., ‘Rx for an Industry: As Biotech
Drug Prices Surge, US Is Hunting for a Solution’, Wall St. J., 28 December 2005,
at A1 [hereinafter Anand, ‘Rx for an Industry’] (noting that spending on specialty
drugs represents 25% of national spending on biopharmaceuticals).
250 A. K. Rai, J. H. Reichman, P. F. Uhlir and C. Crossman

biotechnology firms and larger pharmaceutical companies),13 future

intellectual property rights would nonetheless be suitably allocated
among collaborators.14 Moreover, unlike existing horizontal collabo-
rations that have focused on safety and efficacy issues, our proposed
initiative would deliberately integrate academic scientists as a built-in
vertical component.
We situate our proposal in the economic literature that has analyzed
transaction costs and incomplete contracting in the context of inter-firm
R&D alliances.15 The inter-firm alliance we propose would simulta�
neously redound to the financial benefit of the pharmaceutical industry
and promote the interests of public sector researchers. Most impor�
tantly, under our scheme intellectual property would be used creatively to
secure efficient pathways across the gap that separates upstream research
from downstream products – a gap so economically perilous that it has

13
╇ Smith, G., ‘The Exit Structure of Strategic Alliances’, 2005 U. Ill. L. Rev. 303, 308
n.29 (noting that in a sample of 125 genomics alliances, 113 involved the licensing of
intellectual property by smaller technology firms); cf. Lerner, J. and Robert P. Merges,
‘The Control of Technological Alliances: An Empirical Analysis of the Biotechnology
Industry’, 46 J. Indust. Econ. 125, 132 (1998) (noting that biotechnology firms with
more intellectual property rights exercised more control over the alliance).
14
╇ See generally Oliver Hart, Firms, Contracts, and Financial Structure 29–55 (1995) (dis-
cussing the importance of ex ante property rights allocation). Ex ante, the information
at issue in our proposal is not patentable. Boilerplate patent law does not allow patents
on biochemical inventions of unknown function. See Utility Examination Guidelines,
66 Fed. Reg. 1092, 1097–99 (5 January 2001).
15
╇ See, e.g., Majewski, S. and Dean V. Williamson, ‘Incomplete Contracting and the
Structure of R&D Joint Venture Contracts’, in Intellectual Property and Entrepreneurship
201 (Libecap, G.D., ed., 2004) (arguing that the allocation of property rights in innov-
ation generated by R&D partners is an important part of contract design, particu-
larly in patent sensitive industries like the biopharmaceutical industry); Sampson,€R.,
‘The Cost of Misaligned Governance in R&D Alliances’, 20 J.L. Econ. & Org. 484
(2004) (finding that alliance governance based on transaction cost arguments sub-
stantially improves collaborative benefits). The economic literature on incomplete
contracting grows out of the literature on transaction cost economics (TCE). Both
literatures emphasize the ex ante and ex post transaction cost challenges that man-
aging uncertain future conditions poses for efficient contracting. Unlike the TCE
literature, however, the property rights strand of the incomplete contracting litera-
ture tends to stress the role of ex ante property rights allocation. A related literature
discusses how the availability of statutory intellectual property rights (typically patent
rights) in modular information defines the boundaries of the firm and may also facili-
tate inter-firm market transactions. See, e.g., Arora, A. et al., Markets for Technology:
The Economics of Innovation and Corporate Strategy (2001); Arora, A. and Robert P.
Merges, ‘Specialized Supply Firms, Property Rights and Firm Boundaries’, 13 Indus.
& Corp. Change 451 (2004); Burk, D.L. and Brett H. McDonnell, ‘The Goldilocks
Hypothesis: Balancing Intellectual Property Rights at the Boundary of the Firm’,
2007 U. Ill. L. Rev. 575. This literature is not as directly relevant to our proposal, as
we do not purport to alter the statutory standards by which patent rights are granted
or propose new statutory rights.
 Pathways across the valley of death: IP strategies 251

earned the “valley of death” moniker.16 If these arrangements€generated

a larger number of efficacious drugs, the �public at large would become
the ultimate beneficiary.
In Section 17.2, we frame the problem and describe some alter�native
efforts, existing and proposed, to accelerate drug development. In
Section 17.3, we examine several new pharmaceutical industry collabo�
rations that provide some precedent for our proposed collabo�ration.
In Section 17.4, we set out our proposed multi-firm collaboration
model. In Section 17.5, we discuss the perspectives of various stake-
holders (e.g.€ pharmaceutical companies, academic researchers, non-
profit funders), with a view toward finding common ground on which
to develop the proposed public-private partnership. We also discuss
the possibility of single firm public–private partnerships, which could
represent a desirable option if a comparison of pharmaceutical firm
libraries showed substantial overlap among them. We conclude by con-
sidering briefly antitrust concerns as well as the broader implications of
the collaborative framework we construct for small molecule libraries.

17.2 Framing the problem

Biomedical research in the pharmaceutical industry mainly focuses on
small molecule chemical compounds. In contrast with proteins or other
biologics, small molecule chemicals are usually mass produced at low mar-
ginal cost and are taken orally.17 Many pharmaceutical firms own collec-
tions, or “libraries,” of hundreds of thousands of small molecules that they
have either synthesized internally or have purchased from outside vendors.
Because the functional attributes of these molecules have not generally
been studied in any depth, they typically do not meet even the relatively
lax standards for patentability currently applied by the courts.18 To protect
their investment, firms impose a strict regime of trade secrecy.
In order to test the molecules for biological activity pertaining to disease
processes, pharmaceutical firms must screen them against �interesting

16
╇ Although we focus here on translation of biological research into small molecule drugs,
the term “valley of death” is widely used to describe difficulties of market translation
across different fields of scientific endeavour. See, e.g., Comm. on Accelerating Tech
Transition, Nat’l Research Council, Accelerating Technology Transition: Bridging the Valley
of Death for Materials and Processes in Defense Systems (2004).
17
╇ The systemic bioavailability of small molecules tends to be greater as well. Depending
on their construction, small molecules may simply diffuse through tissues, whereas
proteins must be transported.
18
╇ See generally In re Brana, 51 F.3d 1560, 1565–68 (Fed. Cir. 1995) (finding the pat-
entability requirement of utility met where molecule in question had shown cancer-
fighting properties in a mouse model).
252 A. K. Rai, J. H. Reichman, P. F. Uhlir and C. Crossman

proteins. The experimental protocol under which a target protein is

screened is known as an “assay”. For the past few decades, pharmaceuÂ�
tical firms have been using high-throughput screening (HTS)19 of small
molecule libraries against assays containing target proteins to identify
promising compounds that may lead to patentable drugs. HTS allows
researchers to examine the interaction between the subject of the assay
and all of the many thousands of small molecules housed in a single library
in only a few hours, which vastly increases the scope of potentially useful
information available to scientists. However, despite explosive growth in
genomic and proteomic information about potential targets, and increas-
ing levels of R&D spending,20 results of the HTS approach have thus far
been disappointing. As noted earlier, the production of drugs that work
against new targets has been particularly difficult.21
The pharmaceutical firms’ failure to find new drugs has been accom-
panied by a significant decline in sales revenues on existing drugs. Large
pharmaceutical firms have typically generated very high sales revenues
(and profits) through patents on so-called “blockbuster drugs” that they
can market to large population segments. Prominent examples of block-
buster drugs include cholesterol-lowering agents, anti-�hypertensives
and antidepressants. But patents on many blockbusters are now expir-
ing.22 Moreover, insurers are becoming reluctant to pay high prices for
so-called “me-too” drugs – new products that represent mere incre-
mental improvements over existing molecules.23 In order to �maintain

19
╇ See Bleicher, K.H. et al., ‘Hit and Lead Generation: Beyond High-Throughput
Screening’, 2 Nature Revs. Drug Discovery 369 (2003); Walters, W.P. and Mark
Namchuk, ‘Designing Screens: How To Make Your Hits a Hit’, 2 Nature Revs. Drug
Discovery 259 (2003). The initial mechanical problem presented by high-�throughput
screening of thousands of chemical compounds was solved by the use of robotic
devices. Current state-of-the-art scanners use robotics to test more than one �million
compounds per day against various assays. See Vogel, G., ‘NIH Gears Up for Chemical
Genomics’, 304 Science 1728 (2004).
20
╇ See GAO Report, above note 4.
21
╇ See above note 4 and accompanying text; see also Bleicher, above note 19, at 370
(“[D]espite the massive growth in screening compound numbers over the past fif-
teen–twenty years, no corresponding increase in successfully launched new chemical
entities has resulted.”). See generally US Food & Drug Admin., above note 6.
22
╇ See Smith, A., ‘Generic Drug Flood Headed Our Way’, CNN Money, 3 August 2005,
http://money.cnn.com/2005/08/03/news/fortune500/generic/ (quoting drug industry
analyst Andrew Forman of W.R. Hambrecht & Co. for the proposition that $100 bil-
lion worth of brand name drugs will lose patent protection between 2006 and 2010).
23
╇ In 2005, 68% of employers who provided insurance reported using tiered programs of
co-payment to encourage the purchase of inexpensive pharmaceuticals (either gener-
ics or brand name drugs on which discounts had been negotiated). Blumenthal, D.,
‘Employer-Sponsored Insurance – Riding the Health Care Tiger’, 355 New Eng. J.
Med. 195, 199 (2006). Historically, the market signals sent to pharmaceutical firms
have been less than efficient. Not only have health care payers generally been reluctant
 Pathways across the valley of death: IP strategies 253

profitability, pharmaceutical firms must produce fundamentally new

molecules that address new targets and thus represent �substantial
improvements over existing treatment.

Dearth of drugs against new targets

Although the genome is estimated to contain at least 3,000 druggable
targets, only a few hundred proteins are fully validated24 in the sense
that they are shown to be biologically interesting and also susceptible
to regulation by metabolically accessible, non-toxic drugs. Despite
the infusion of new information about possible targets, some pharma-
ceutical companies continue to focus on this group of a few hundred,
already validated targets. While this strategy may indicate excessive
risk-�aversion, the fact that health insurance companies were once will-
ing to pay high prices for me-too drugs remains a factor. Validating new
targets is also more risky and complex now than in the past. Many obser-
vers believe most of the “low hanging fruit” – that is, targets that can be
readily modulated by well-tolerated, simple chemicals – has been found.
This tendency to focus on a small number of known targets means that
insufficient research has been undertaken on new targets.25
A number of discovery-oriented pharmaceutical firms continue to
engage in target validation using in-house biological and chemical
expertise. So do some small biotechnology firms. For the latter, patents
on new targets can serve as the basis for both arms-length licensing and
more vertically integrated R&D alliances with pharmaceutical firms.
One empirical study indicates that biotechnology and pharmaceutical
firms formed more than 1,000 such two-firm alliances between 1993
and 2000.26 Despite these alliances, which may be responsible for a

to use cost-effectiveness analysis in determining coverage, but the information neces-

sary for determining cost-effectiveness – a public good – has been undersupplied.
Avorn, J., ‘Sending Pharma Better Signals’, 309 Science 669 (2005). However, this
situation may be changing. See ibid. Moreover, at least in some cases, incremental
improvements may not even be patentable. See, e.g., Pfizer v. Apotex, 480 F.3d 1348
(Fed. Cir. 2007) (holding that a new salt form of an existing chemical compound was
not patentable).
24
╇ See Whitty and Kumaravel, above note 3.
25
╇ See, e.g., Cockburn, above note 5, at 12. It is theoretically possible that the low-
�hanging fruit that has already been found represents the sum total of biological tar-
gets on which research is justified as an economic matter. In other words, the costs of
doing further research may exceed the health benefits achieved by any new drugs that
might be found. There is little evidence to back this hypothesis, however.
26
╇ Higgins, M.J., The Allocation of Control Rights in Pharmaceutical Alliances (Soc. Sci.
Research Network, Working Paper No. 918980, 2006), available at http://ssrn.com/
abstract=918980 (describing an empirical study using data from Recombinant
Capital, a California-based biotechnology consulting firm). For a discussion of such
254 A. K. Rai, J. H. Reichman, P. F. Uhlir and C. Crossman

growing pool of therapeutics that are biological macromolecules, 27 very

few new small molecule drugs have emerged.28 Given escalating health
care expenditures, this dearth of cost-effective small molecules, which
(unlike biologics) can be made at low marginal cost after relevant pat-
ents expire, 29 is particularly unfortunate.
Moreover, while biotechnology firms could previously use early stage
patents to secure venture capital funding or form vertical alliances, such
patents no longer guarantee either funding or an alliance. Industry ana-
lysts have recently emphasized the biomedical “funding gap” resulting
from the increasing reluctance of venture capital and pharmaceutical
firms to invest far upstream.30
The failure of efforts to fill the small molecule pipeline may prove to
be a transient phenomenon, particularly if the integration of informa-
tion technology accelerates drug development efforts. However, des-
pite optimistic predictions in the past,31 information technology has not
yet yielded significant efficiencies. This failure makes experimentation
with supplementary approaches imperative.
Another candidate for undertaking financially risky target vali�dation
is academia. Indeed, a key economic argument for public funding of
science is that the private sector will tend to undersupply research
with uncertain commercial potential.32 Even though it may need some
assistance in identifying which targets are most likely to bind drug-like
molecules, the academic sector generally possesses the combination of

licensing and alliance activity at one of its historical spikes (around 2000–1) see Rai,
A.K., ‘Fostering Cumulative Innovation in the Biopharmaceutical Industry’, 16
Berkeley Tech. L.J. 813, 815–18 (2001).
27
╇ See Anand, Rx for an Industry, above note 12 (noting the 25% market share now held
by specialty drugs, primarily biologics).
28
╇ See GAO Report, above note 4.
29
╇ Currently, there is no generic biologics regime. Moreover, even if a generic biologics
regime were established, bioequivalence is likely to be harder to prove in the context
of biologics than in the context of small molecules. In any given case, the FDA may
require clinical trials to demonstrate comparable safety and efficacy. This will cre-
ate a barrier to entry for generic competitors. See Grabowski, H. et al., ‘Entry and
Competition in Generic Biologics’, 28 Managerial & Decision Econ. 439 (2007).
30
╇ See, e.g., Klausner, A., ‘Mind the (Biomedical Funding) Gap’, 23 Nature Biotechnology
1217 (2005) (tracking the history of funding for research, and noting the reluctance of
venture capital firms to fund upstream biomedical ventures).
31
╇ One of the authors of this Article previously made some optimistic predictions in this
regard. Rai, A.K., ‘The Information Revolution Reaches Pharmaceuticals: Balancing
Innovation Incentives, Cost, and Access in the Post-Genomics Era’, 2001 U. Ill. L.
Rev. 173.
32
╇ See Arrow, K., ‘Economic Welfare and the Allocation of Resources for Invention’, in
Nelson, R.R. (ed.), The Rate and Direction of Inventive Activity 609 (1962) (discussing
problems of uncertainty, indivisibility, and lack of appropriability involved in the pro-
duction of information).
 Pathways across the valley of death: IP strategies 255

skills needed for assay development.33 But most academics have lacked
systematic access to high-throughput screening and to the small mol-
ecule libraries necessary for comprehensive target validation. Instead,
academics who desire access to small molecules in a pharmaceutical
firm’s library must negotiate terms of access and the corresponding
intellectual property considerations on an ad hoc basis. Knowledgeable
observers have long suggested that the transaction costs associated with
these individualized negotiations constitute a significant barrier.34
A recent survey of 414 academic scientists by John Walsh, Charlene
Cho and Wesley Cohen provides some evidence of the magnitude of these
costs. In general, academic scientists report that negotiations between
industry and academia concerning materials are likely to take longer, and
cause more delay, than negotiations within academia: 35% of such nego-
tiations require more than a month (as contrasted with 21% of negoti-
ations with university suppliers) and 16% of such negotiations result in
a research delay of over one month (as contrasted with 6% of academic
negotiations).35 Where the material in question is a drug, the transaction
becomes particularly arduous. All other factors being equal, an academ-
ic’s request for a drug (whether from industry or from another academic)
was one-twelfth as likely to be fulfilled as requests for other materials.36
Strains in academic–industry negotiations concerning drug-related
materials should come as no surprise. Such negotiations would typi�cally
become an option only in cases where the firm’s research on a drug com-
pound had progressed to the point of disclosure through publication (and
associated patenting).37 Disclosure would serve to alert the academic
researcher that a firm had discovered a promising compound. At that
stage, much would be known about the drug compound, which would
make the resulting transactions of relatively high value. The firm would
probably demand significant compensation for transferring the drug. In

33
╇ See Ivinson, A.J., Letter to the Editor, ‘University Investment in Drug Discovery’,
310 Science 777 (2005) (contending that academics have been underutilized in drug
research and discovery).
34
╇ See Lipinski, above note 9, at 382 (discussing individualized negotiations between
principal investigators and pharmaceutical firms).
35
╇ Walsh, J.P. et al., ‘Where Excludability Matters: Material Versus Intellectual Property
in Academic Biomedical Research’, 36 Research Policy 1184, 1185–7 (2007).
36
╇ Ibid. at 1190–1. When reporting this statistic, the authors do not control for whether
the supplier is an academic or is in industry. Thus it is not possible to determine
whether requests for drugs were less likely to be fulfilled by industry suppliers than
academic suppliers.
37
╇ Cf. Lipinski, above note 9, at 381 (discussing circumstances where a firm refers to a
compound in a peer reviewed publication). In order to preserve commercial value, the
firm would presumably allow publications about the compound only after a relevant
patent application had been filed.
256 A. K. Rai, J. H. Reichman, P. F. Uhlir and C. Crossman

fact, empirical data indicates that 70% of agreements involving the transfer
of drugs to academics include reach-through rights on improvements.38
At some point, industry requests for reach-through rights in patented
drugs may become routine. As matters currently stand, however, aca-
demics and university technology transfer officers remain uncertain
about the appropriate use of such rights,39 and their uncertainty can
lead to impasse. The fact that 70% of agreements to transfer drugs
to academics also include some restrictions on publication40 no doubt
exacerbates difficulties in negotiation.
Of course, information could flow in the opposite direction. Firms
do monitor academic publications to determine whether researchers are
working on promising targets. In some cases they successfully form part-
nerships with the academics in question.41 But surmounting difficulties
in negotiation across the academic–industry divide appears challenging
in this context as well. In the survey by Walsh and his colleagues, aca-
demic respondents admitted to failing to fulfil 31% of requests for materi-
als from industry (as contrasted with only 6% from other academics).42

Attempts to bridge the public–private divide

More standardized legal documentation is one obvious mechanism
for reducing transaction costs in transfers of drug-related mater�ials
between the private sector and academics. In general, standardized
contracts can produce positive externalities that reduce transaction
costs for users,43 and efforts in this direction could be helpful. However,
because the transactions in question are likely to be of high value,

38
╇ Walsh et al., above note 35, at 1193. A reach-through royalty is an industry term that
refers to a royalty that extends beyond the licensed item to products made using the
licensed item.
39
╇ See Eisenberg, R.S., ‘Bargaining Over the Transfer of Proprietary Research Tools’, in
Dreyfuss, R. et al., (eds.), Expanding the Boundaries of Intellectual Property 223 (2001). It
is also noteworthy that while academics often ignore patents on research materials and
make the materials in-house if they have the ability to do so, drug patents represent a
prominent exception. See Walsh et al., above note 35, at 1192. In the case of drugs, both
lack of in-house expertise and patents represent barriers to use. Id.
40
╇ Walsh et al., above note 35, at 1193.
41
╇ Telephone Interview with Roses, A., Senior Vice President of Pharmacogenetics,
GlaxoSmithKline, in Research Triangle Park, N.C. (18 April 2006) [hereinafter
Roses Interview] (discussing partnerships that firms sometimes form upon reading of
interesting work by academic researchers).
42
╇ Walsh et al., above note 35, at 1191.
43
╇ See Kahan, M. and Michael Klausner, ‘Standardization and Innovation in Corporate
Contracting (or “The Economics of Boilerplate”)’, 83 Va. L. Rev. 713, 720–30 (1997)
(discussing learning benefits conferred on later users and “network benefits” con-
ferred on contemporaneous users).
 Pathways across the valley of death: IP strategies 257

full standardization will be difficult to achieve, or even affirmatively

undesirable. Significant benefits may accrue from some level of cus-
tomization. Moreover, the creation of standardized agreements repre-
sents a collective action problem.44 Given the divergent perspectives
of academia and the private sector, solving this problem may not be
straightforward.45
Even if standardized agreements were successfully created and
implemented, the universe of transactions would be limited to those
circumstances in which significant work had already been carried out.
Drug discovery might be accelerated, but only to a limited extent. To
put the point another way, the problem is only partly one of transaction
costs in instances where transactions might currently occur. More fun-
damentally, under the existing regime, insufficient numbers of trans-
actions€ – specifically, screens of potentially interesting assays against
large volumes of small molecules – occur in the first instance.
A more comprehensive response to the valley-of-death problem is
the Molecular Libraries Initiative (MLI), undertaken by the National
Institutes of Health (NIH) several years ago.46 Although the purposes
of the MLI go beyond target validation, one key goal is to use public
funding to advance research on targets to a stage that would elicit indus-
try interest. The MLI reflects NIH’s recognition of three key techno-
logical changes: first, that recent research in genomics (e.g., the Human
Genome Project) has produced many new potential drug targets; second,
that enormous increases in high-throughput screening power make the
screening of hundreds of thousands of molecules a day possible for aca-
demic centres; and third, that academic centres now have the capacity to
efficiently synthesize large numbers of chemical molecules.47
The MLI has created a “Molecular Libraries Small Molecule
Repository” at the San Francisco facilities of Discovery Partners

44
╇ Ibid. at 736–40 (discussing “coordination” problems).
45
╇�����������������������������������������������������������������������������������In some cases, implementation of standardized agreements can also represent a col-
lective action problem. See Rai, A.K. and Rebecca S. Eisenberg, ‘Bayh-Dole Reform
and the Progress of Biomedicine’, 66 Law & Contemp. Probs. 289, 306 (2003) (dis-
cussing failure of collective action in university implementation of the standardized
Uniform Biological Materials Transfer Agreement).
46
╇ See generally Austin et al., above note 8 (describing the background and goals of the
MLI).
47
╇ See Nat’l Insts. Health, Overview, Molecular Libraries and Imaging, http://nihroad-
map. nih.gov/molecularlibraries/ (last visited 30 October 2007). In addition to the
MLI, various individual public institutions offer some HTS capability. For a list,
see Nwaka,€S. and Alan Hudson, ‘Innovative Lead Discovery Strategies for Tropical
Diseases’, 5 Nature Revs. Drug Discovery 941, 947 (2006). However, the MLI is the
most ambitious effort.
258 A. K. Rai, J. H. Reichman, P. F. Uhlir and C. Crossman

International.48 It has been paying, and will continue to pay, aca-

demic researchers with expertise in medicinal chemistry to generate
molecules to populate this public domain repository.49 Currently, the
repository contains about 100,000 small molecules (some of which
may duplicate molecules held in pharmaceutical firm libraries). This
repository consists of four molecular classes: “specialty sets,” including
compounds with known biological activity, such as drugs and toxins;
natural Â�products; “targeted libraries” for specific, high-profile proteins;
and diversity compounds.50 Ten academic centres have received fund-
ing to use this repository to perform high-throughput screening on
assays submitted by the research community.51
The assays pertinent to this effort encompass more than simply pro-
teins that are potential drug targets.52 As NIH recognizes, small mol-
ecules available in the public domain for all researchers are likely to
be extremely valuable as research tools that will further basic under-
standing of biological pathways not necessarily related to direct drug
development. Nevertheless, one of NIH’s goals is to encourage target
validation, so as to narrow the gap between academic outputs and com-
mercial investment and produce more breakthrough drugs.53
In assessing the more directed goal of generating validated targets,
it is important to recognize that the molecules in the public repository
are likely to be of lower quality (in terms of target specificity, meta-
bolic attributes, toxicity and other relevant features) than those held
by pharmaceutical firms. Although academics and the public sector
more generally are beginning to achieve some expertise in medicinal
chemistry,54 they still do not possess the level of expertise available in

48
╇ Molecular Libraries Initiative, General Information, http://mli.nih.gov/mlsmr/
general-information (last visited 30 October 2007).
49
╇ Ibid.
50
╇ NIH Molecular Libraries, A Roadmap Initiative, MLSMR Project, http://mlsmr.
glpg.com/ MLSMR_HomePage/identify.html (last visited 30 October 2007).
Targeted libraries include modulators of prominent protein families, such as pro-
teases, kinases, ion channel proteins, and nuclear receptor sets. Diversity compounds
include all other compounds. Ibid.
51
╇ Nat’l Insts. Health, New Paradigm Will Help Identify Leads for Drug Discovery,
www.nih.gov/news/pr/july2006/nhgri-24.htm (last visited 30 October 2007).
52
╇ Other assays will include “protein-protein interactions, splicing events, and diverse
cellular and even organismal phenotypes.” Austin et al., above note 8, at 1139.
53
╇ Ibid. at 1138 (noting goal of target validation).
54
╇ Thus, it appears that the NIH Chemical Genomics Centre, which is part of the MLI,
has identified three classes of molecules that might be useful in treating Gaucher’s
disease and is currently working on optimizing their activity and reducing toxicity.
See Press Release, Nat’l Insts. Health, Novel Approach Targets an Inherited Disorder:
NIH Chemical Genomics Centre Jumpstarts Drug Development in Public Sector
(23€ July 2007), available at www.genome.gov/2552214. In addition, according to
 Pathways across the valley of death: IP strategies 259

the pharmaceutical industry. This handicap may make the MLI target
validation goal harder to attain. More comprehensive validation may
await confirmation by a private firm’s screening against a more “drug-
like” molecule in its own library.
One might argue that private firms should be willing to undertake
this additional work. Under the default rules of the Bayh-Dole Act of
1980 (which gave universities broad discretion to secure patents on
federally funded research),55 as well as NIH rules specific to the MLI
program,56 universities may patent targets or associated assays. Thus,
following the conventional vision of Bayh-Dole,57 a private firm might
hedge the risk involved in this additional work by obtaining an exclusive
license to the patented target or assay. However, given venture capital-
ists’ current reluctance to invest in relatively early-stage patents,58 these
exclusive licenses may not suffice.
In any event, experimentation with another alternative – direct
screening of academic assays against a pool of the small molecule librar-
ies held by pharmaceutical firms – would eliminate some unnecessary
intermediate work and could also reduce the transaction costs associ-
ated with licensing targets. To the extent that such a pool encompassed
distinct contributions from several firms,59 it might contain consider-
ably more molecules than the current group of 100,000 held in the
public-domain repository.
In sum, the impasse in genomic science presents the following under-
lying characteristics. First, too few qualified researchers are able to use
screening assays against the small molecule libraries held as trade secrets
by discovery-oriented pharmaceutical firms.60 In particular, academic sci-
entists with the talent to design assays lack access to these libraries. Second,
to the extent that the libraries held by individual, �discovery-oriented

Centre director Chris Austin, the Centre’s specific use of quantitative high-through-
put screening techniques, which allows chemical compounds to be tested at different
concentrations, is likely to reduce false positives and false negatives. Ibid.
55
╇ Bayh-Dole Act of 1980, Pub. L. No. 96–517, 94 Stat. 3015 (codified as amended at
35 U.S.C. §§ 200–212 (2000)).
56
╇ See NIH MLSCN Project Team Position on Data Sharing and IP in the MLSCN
Program (15 October 2005) (on file with authors).
57
╇ See, e.g., Eisenberg, R.S., ‘Public Research and Private Development: Patents and
Technology Transfer in Government-Sponsored Research’, 82 Va. L. Rev. 1663,
1698–9 (1996) (discussing motivations behind the Bayh-Dole Act); Rai, A.K.,
‘Regulating Scientific Research, Intellectual Property Rights and the Norms of
Science’, 94 Nw. U. L. Rev. 77, 95–7 (1999).
58
╇ See above text accompanying notes 30.
59
╇ For a discussion of questions regarding overlap in molecular library contents see
below.
60
╇ Our research suggests that pharmaceutical firms may conduct fewer than one �hundred
screens per year against their whole library. See Roses Interview, above note 41.
260 A. K. Rai, J. H. Reichman, P. F. Uhlir and C. Crossman

pharmaceutical firms differ from each other, it would be advantageous for

academics to conduct screening assays against a pool that contains por-
tions of all the libraries held by discovery-oriented firms.61
If such a pool were created, it is unlikely that pharmaceutical firms
would contribute molecules about which they already possessed signifi-
cant information (let alone molecules they considered potential lead
compounds). Even so, a pool that included some substantial subset
of pharmaceutical firms’ compounds – for example, “diversity” com-
pounds about which little was known – could prove extremely useful.

17.3 Models for multi-firm, public–private collaboration

As a supplement to current approaches such as the MLI and to possible
future efforts, including standardized contracts, we suggest a novel,
large-scale public-private model. This collaborative approach would
draw upon some recent experimentation that pharmaceutical firms are
already conducting in this area. Moreover, it would respond to the advice
that analysts have been giving the pharmaceutical industry for years –
that it must “fundamentally review [its] R&D business models”.62 In
this Section, we describe inter-firm, public–private collaborations in the
areas of safety and efficacy upon which our proposed approach would
draw. Section 17.4 describes our proposed collaboration in detail.

Existing collaborations on toxicity and efficacy

Until recently, pharmaceutical companies paid insufficient attention to
optimizing particular characteristics of small molecules, such as tox-
icity and “pharmacokinetics” (i.e., absorption, diffusion, metabolism
and excretion), which are important for drug safety and efficacy in
the human body.63 For example, firms sometimes designated a “lead”
compound, and assembled a full team around it, solely because the
compound had shown significant activity (affinity and selectivity) in a
high-throughput laboratory screen against an assay containing a �target
protein.64 Thus, firms were making a substantial investment without

61
╇ Molecule libraries held by firms that do not seek to discover new targets would be
much less useful, as those libraries would primarily contain molecules that work
against existing, already validated targets.
62
╇ DataMonitor, above note 10.
63
╇ See GAO Report, above note 4, at 87 (finding that failure rates in human clinical tri-
als based on lack of safety or efficacy were 82% in the 1996–9 period and 91% in the
2000–3 period).
64
╇ Bleicher et al., above note 19, at 370 (“It was not uncommon for a single [hit] com-
pound to be considered a ‘lead’ structure.”).
 Pathways across the valley of death: IP strategies 261

any good information about how the body would respond to the poten-
tial drug. In recent years, analysts have recognized that the lack of early
attention to pharmacokinetic and toxicity-related characteristics of pro-
posed small molecules was a factor in the growing number of pipeline
failures, including costly failures at late stages of clinical testing or even
after FDA approval for commercial marketing.65
Pharmaceutical firms have worked diligently to address this prob-
lem. As an initial matter, they purged their libraries of molecules that
are likely to be “grit” – for example, molecules that are non-selective
inhibitors of many different targets or that have well-known pharma-
cokinetic or toxicological liabilities.66 Firms are also enhancing the
quality of their libraries with the help of specialized suppliers of small
molecules. Moreover, prior to selecting lead compounds for optimiza-
tion, pharmaceutical firms have been supplementing high-throughput
screening with another stage of focused inquiry into properties neces-
sary for safety and efficacy in the human body.67
The pharmaceutical industry is also advancing safety and efficacy
goals by means of public–private collaborative partnerships. Specifically,
in establishing at least two such consortia, firms have recognized that
an optimal level of inquiry into safety or efficacy may require knowledge
not contained within the boundaries of a single firm. To the extent that
any participating pharmaceutical firm finds standard, early biological
signs (also known as biomarkers) of drug toxicity or efficacy, all the
other firms in the consortium could use this information for a variety
of efficiency-enhancing functions.
For example, biomarkers might help to provide expedited preclin-
ical drug safety evaluation as well as early indicators of clinical safety
and efficacy.68 They could also be used to troubleshoot compounds
that fail preclinical drug safety testing.69 Whenever the Food and Drug
Administration approved a particular biomarker as a reliable indica-
tor of safety or efficacy for a variety of drugs, it might become an
industry standard around which all competing firms could converge.

65
╇ Ibid.
66
╇ Telephone Interview with Roses, A., Senior Vice President of Pharmacogenetics,
GlaxoSmithKline, in Research Triangle Park, N.C. (19 December 2006) (on file with
authors). See also Lipinski, above note 9, at 381 (discussing the use of the Lipinski
“rule of 5” to filter out compounds that are unlikely to be absorbed orally).
67
╇ See Hopkins, A.L., Michael J. Witty and Solomon Nwaka, ‘Mission Possible’, 449 Nature
166, 168 fig. (2007) (discussing steps such as cell-based or animal model testing).
68
╇ See, e.g., Toxicogenomic Cross-Validation Consortium Agreement § 2.1 (20 January
2006) (on file with authors) [hereinafter Consortium Agreement] (discussing the use
of “safety biomarkers” for expediting preclinical and clinical drug development).
69
╇ See ibid. § 2.1(c) (discussing such troubleshooting).
262 A. K. Rai, J. H. Reichman, P. F. Uhlir and C. Crossman

As the National Academy of Sciences noted in a recent report endors-

ing horizontal biomarker consortia, these “precompetitive projects
(most likely unrelated to a particular drug) would be enabling to
the€field”.70
In one recently formed collaboration, the Predictive Safety Testing
Consortium (PSTC), all of the major pharmaceutical firms have com-
mitted to sharing internally-developed laboratory methods that predict
the safety of new treatments.71 They have also committed to perform-
ing validation experiments on laboratory methods developed by other
consortium members.72 As a result, under the PSTC, experts from
multiple firms work on sequential phases of the same project to develop
tests of drug safety.
The PSTC agreement relies heavily on a non-profit, trusted inter-
mediary, Critical Path, of which the FDA is a founding member.
Critical Path is responsible for consortium management. For example,
it collects membership fees from pharmaceutical firm participants,
coordinates the selection of research projects and (with the assistance
of an advisory �committee composed of Critical Path and pharmaceut-
ical firm representatives) manages the flow of any confidential infor-
mation.73 If the PSTC advisory committee deems it appropriate to seek
patents on technology generated by the consortium, Critical Path will
own the patent rights.74
While the PSTC focuses on tests for safety, the recently-formed
Biomarkers Consortium aims to encompass research that identifies

70
╇ Nat’l Acad. of Scis., Cancer Biomarkers: The Promises and Challenges of Improving
Detection and Treatment 6 (2007), available at http://books.nap.edu/catalog/11892.
html.
71
╇��������������������������������������������������������������������������������
Consortium Agreement, above note 68, § 3.2 (stating that members “must be will-
ing and able to contribute one or more nominated exploratory Safety Biomarkers or
other information or Materials for use in Consortium research activities”). Note that
the Predictive Safety Testing Consortium was formerly known as the Toxicogenomic
Cross-Validation Consortium.
72
╇ See ibid. (stating that members must “perform validation work with respect to
one or more Safety Biomarkersâ•›…â•›a nd have the capability to cross-validate Safety
Biomarkers”).
73
╇ See ibid. §§ 5.2, 6.1 (discussing various aspects of Critical Path’s management role).
74
╇ See ibid. § 8.2(a) (noting the role of the advisory committee in determining whether
to pursue formal patent rights); id. § 8.2(b) (stating that “[e]ach Member performing
any activities under a Research Project hereby assigns to C-Path all of such Member’s
right, title, and interest in and to any and all Consortium Technology”). The PSTC
recently submitted twenty-three proposed biomarkers that could be used to identify
kidney toxicity in preclinical animal testing. See Toner, B., ‘Predictive Safety Testing
Consortium Submits First Biomarkers to FDA for Qualification’, Genome Web Daily
News, 21 June 2007, www.genomeweb.com/issues/news/140703–1.htm. It is unclear
whether any patent rights have been sought.
 Pathways across the valley of death: IP strategies 263

good biomarkers of both drug safety and efficacy.75 Like the PSTC, the
Biomarkers Consortium includes all of the major pharmaceutical firms,
and it allows scientists at competing firms to contribute their expertise to
the development of specific biomarkers. As with the PSTC, public sec-
tor agencies – most prominently the non-profit Foundation for the NIH,
which manages public–private partnerships for NIH – play a major role
in selecting research projects and in managing the flow of funding.76
Research on biomarkers will ultimately yield products, such as safety
assays, that are beneficial to multiple pharmaceutical firms, but are
unlikely to represent a core product for any firm. For this and other
reasons, both of these consortia require ex ante commitments to rela-
tively liberal licensing agreements for any intellectual property their
common efforts may generate.
In the case of the PSTC, members agree that the objective of the
consortium is to achieve “broad public dissemination of the results
of the research and development projects conducted pursuant to this
Agreement”.77 Patents are to be sought only in cases where the advisory
committee determines that they would promote dissemination of dis-
coveries.78 Moreover, Critical Path is obligated to license any patents it
may own to all comers on commercially reasonable terms.79
In contrast with the PSTC, the Biomarkers Consortium does not
assign intellectual property rights to a trusted intermediary. Rather,
inventorship is governed by the default rules of US law, and owner-
ship is defined by the policies of the inventor’s employer.80 Nonetheless,
for all new data and inventions arising out of a particular project, all
participants that have an ownership interest in the intellectual prop-
erty generated must grant to all other participants a “non-exclusive,
remuneration-free license”.81

75
╇ Press Release, Foundation for the NIH, Public-Private Partnership Forms the
Biomarkers Consortium To Advance the Science of Personalized Medicine (5 October
2006), available at www.fnih.org/news/TBC_Press_Release.shtml (noting that “the
FDA can use biomarkers to determine whether drugs can safely and effectively treat
disease”). The Biomarkers Consortium also plans to identify biomarkers for early dis-
ease detection. See ibid. That research goal is not directly relevant here.
76
╇ See Found. for the NIH, The Biomarkers Consortium, Two-Phased Project Approval
Process: Concept Clearance and Project Plan Approval 3 (2006), available at http://test.
fnih.org/Biomarkers%20Consortium/Project_Clearance.pdf (showing a flowchart
that details responsibilities of the FNIH Board). While the PSTC funds its research
projects from membership fees, the Biomarkers Consortium agreement requires the
Foundation for the NIH to seek specific funding for each new project.€Ibid.
77
╇ Consortium Agreement, above note 68, § 8.2(a). 78
╇ See ibid. 79╇ Ibid. § 8.3(b).
80
╇ Found. for the NIH, The Biomarkers Consortium, General Intellectual Property
and Data Sharing Principles 5 (2006), available at http://test.fnih.org/Biomarkers%
20Consortium/IP_Policies.pdf.
81
╇ Id.
264 A. K. Rai, J. H. Reichman, P. F. Uhlir and C. Crossman

Expanding the collaborative approach

The formation of collaborative horizontal partnerships to address safety

and efficacy raises the question of whether other, somewhat analogous,
but more ambitious forms of collaboration could successfully address
problems of translation. Specifically, we ask whether large-scale collab-
oration might improve translation by the academic sector of large vol-
umes of upstream biological information into “validated targets” and
potential drug candidates that would be of interest to industry. Like
safety and efficacy, translation arguably entails further improvement
of relatively undifferentiated trade secret information held by multiple
firms. This improvement process may be greatly enhanced through
evaluation by multiple parties.
Like the PSTC and the Biomarkers Consortium, our proposed part-
nership would use a trusted intermediary to facilitate firm participa-
tion. Additionally, like the Biomarkers Consortium, it could use the
lure of public funding to stimulate greater participation by the private
sector. Unlike these other consortia, however, our partnership would
produce outputs – potential drug candidates – that engender fierce
inter-firm competition. Thus, while the PSTC does not link inventive
contribution and ownership, our proposal would maintain a tight link
between the two. Additionally, whereas the PSTC and the Biomarkers
Consortium mandate relatively liberal licensing practices, our proposal
would have no such mandate.
In our proposed partnership, the trusted intermediary would neces-
sarily play a more vigorous role in handling confidential information.
As discussed further in the next Section, the intermediary would itself
conduct the high-throughput screening of the pharmaceutical firms’
molecules against assays contributed by academics. It would thus be
the only party to the collaboration that possessed full knowledge of all
of the assays and molecules that academics and pharmaceutical firms,
respectively, had contributed.
By merging academic talent in assay design with the high-quality
but underutilized research resource represented by the pharmaceu�
tical firms’ libraries, our proposed public–private partnership aims
to help the parties traverse the valley of death that currently impedes
research on drugs that address new targets. As contrasted with the
alternative of complete vertical integration – for example, subsidizing
discovery-�oriented pharmaceutical firms to hire academics with assay
design skills€– the public–private partnership we envision would allow
assay designers access not simply to one firm’s library but instead to
a larger, pooled library consisting of small molecule collections that
 Pathways across the valley of death: IP strategies 265

a number of firms had contributed. Unlike complete vertical inte-

gration, a public–private collaboration would not require academics
to change career paths, which would make it more likely to succeed.
Pharmaceutical companies contributing portions of their libraries
might still be subsidized to the extent that the trusted intermediary
consented, at least initially, to bear some of the costs associated with
establishing the pool and of providing academic researchers relevant
grants.
Pharmaceutical firms that contributed compounds to the pool
would profit directly from any commercial drug that emerged from
molecules they contributed. As we discuss in the next Section, ordi�
nary patent rules would deliver this result. Additionally, participating
firms might find it in their interest to allow those who contributed
molecules to the pool to receive a small share of the patentee’s profits
when one or more of their molecules fell within a subset of initially
promising molecules identified by the screening process. In the lat-
ter instance, profit would be derived from a predetermined royalty
stream to the contributing firms under an automatic license, as dis-
cussed below.

17.4 Proposed multi-firm partnership

In this Section, we outline the institutional framework and intellectual
property strategies that could help stakeholders in both the private and
public sectors to make better and more productive use of the aggre-
gate stock of small molecules available for high-throughput screening.
These proposals attempt to bridge the gap between patents and the
public domain, which is currently regulated only by the application of
trade secret law (or actual secrecy), to the private sector’s large hoards
of small molecules.
The ultimate objectives of our approach are to:
1)╇ Create a research regime in which qualified public-sector partici-
pants explore a larger and higher quality pool of molecules than is
currently possible.
2)╇ Design a contractually constructed framework in which publicly
funded university research could identify potential lead compounds
without compromising patents on those compounds.
3)╇ Administer this voluntarily adopted framework within a public–
private partnership that would more effectively translate upstream
research into truly innovative therapeutic advances, thereby contrib-
uting to overall public health.
266 A. K. Rai, J. H. Reichman, P. F. Uhlir and C. Crossman

Threshold question of overlap

An initial question regarding pool formation concerns possible over-
lap among molecules that participating firms may contribute. If, for
example, it turned out that molecules contributed by different firms
were substantially identical, then there would be little reason to pool
the molecules. In that case, a model of multiple public–private partner-
ships, each built around contracts with a single firm, would become
preferable. This alternative model is discussed in Subsection ‘Single
firm public–private partnerships’ below.
Because libraries are held by firms as trade secrets, the amount of
overlap among them is currently unknown. More important for pre-
sent purposes, it is unclear whether the molecules actually selected and
contributed by participating firms would overlap. Even if we postu-
late that most firms would contribute so-called “diversity” molecules
(because these were the molecules about which they had little specific
information), the extent of overlap between the various firms’ diver-
sity molecules remains unknown. A trusted intermediary accordingly
would need access to structural data on a confidential basis in order to
determine the degree of overlap. It could then release this information
(in suitably anonymized fashion) to participating firms.
For example, in a situation where three firms had contributed
molecular libraries, the intermediary might reveal that, of the total
number of molecules contributed, about 20% were duplicates owned
by two firms and 10% by three firms. At that point, the participating
firms would determine whether the degree of overlap was sufficiently
small to justify going forward. If the firms decided to proceed, the
pooled molecules would already have been collated and any instances
of duplication identified. This collation would, in turn, eliminate
duplicative screening.

Two-tiered regime
Central to our proposed multi-firm partnership is a two-tiered system.
At Tier 1, both academic external researchers and the participating
companies could be viewed as operating behind a “veil of ignorance”.82
Although the researcher might possess some information about a poten-
tially interesting assay, and the participating companies might hold
some basic information about the molecules they contributed, infor-
mation on both sides would be relatively inchoate and precompetitive
in nature.

╇ Cf. Rawls, J., A Theory of Justice (1971).

82
 Pathways across the valley of death: IP strategies 267

Equally important, only the trusted intermediary would know about

the full set of assays and molecules existing at Tier 1. Individual aca-
demic researchers and contributing firms would remain unaware of
contributions by any other parties. In contrast, research activities con-
ducted at Tier 2, under the custom-made contractual arrangements
described below, would necessarily have moved beyond this veil of
ignorance.
The trusted intermediary would host the pool and assume respon-
sibilities for its day-to-day management and administration. The
�intermediary would also certify and perhaps fund the public-sector
�academics allowed to explore the molecules held in the pool. Additional
financial guarantees from participating universities might become
necessary in order to assure pharmaceutical firms that contractual obli-
gations regarding nondisclosure were respected.

Tier 1: Behind the veil of ignorance

At the first tier of the partnership, researchers in approved academic
institutions (that is, institutions that had signed nondisclosure agree-
ments and perhaps put up a bond to guard against misappropriation)
would contribute assays. The trusted intermediary would then run these
assays against the pooled collection of small molecules made available
by participating firms. All molecules contributed to the pool would be
tagged with a marker that tracked their corporate origin. The trusted
intermediary would, however, code these markers so that researchers
receiving information on “hits” resulting from high-throughput screen-
ing would not know the pharmaceutical firm owner of the molecules
they were using.
Successful high-throughput screening of these molecules would likely
identify a subset of molecules as “hits” – in other words, molecules
that showed significant activity against the target in question and could
lead to new drug candidates. The academic who contributed the assay
would receive coded results showing levels of activity for the relevant
molecules, and the firms would receive some information as well. This
Tier 1 information would be released in a structured way, in order to
best facilitate the formation of an academic–pharmaceutical partner-
ship for further target validation and drug development.
Prior to being told that one or more of the molecules it had con-
tributed represented a hit, the firm could withdraw a molecule at any
point. In order to forestall opportunistic behavior, however, once the
trusted intermediary informed the firm that one of its molecules rep-
resented a hit, that molecule could not be withdrawn. On the contrary,
after a hit, the contributing firm would have an obligation to provide
268 A. K. Rai, J. H. Reichman, P. F. Uhlir and C. Crossman

relevant structural information to the academic via the intermediary.83

Standardized licenses governing first-tier access would forbid informa-
tion disclosure or misappropriation.
For its part, the academic laboratory and associated university (com-
municating through the intermediary) would provide the firms that
owned hit molecules with a general statement of the methodology
used to develop its target. However, in order to maintain its bargain-
ing po�sition despite the absence of a patent,84 the academic institution
would not identify that target.85 Therefore, at this point, the academic
scientist would know the chemical structure of a number of compounds
that showed activity against the target, while the pharmaceutical firm(s)
would know that one or more molecules from their libraries had pre-
sented interesting research possibilities.
The public-sector scientist, with the assistance of the trusted inter-
mediary, would attempt to determine which firm had the combination
of hit molecules most likely to yield a successful drug. The decision
would presumably be based on an assessment of liabilities and assets
associated with the structures in question. Through the trusted inter-
mediary, a firm could also, if it so desired, share with the scientist
on a confidential basis any additional information that it might have.
Presumably, it would do so in order to entice the scientist into a second-
tier partnership.
A complication in the process would arise if one or more of the
chosen firm’s hit molecules were duplicates of molecules owned by
another firm. In all likelihood, co-ownership of even one molecule
should remain a relatively rare occurrence because, as discussed
�earlier, if molecules contributed by different firms overlapped signifi-
cantly, there would be little reason to move forward with a multi-firm
pool.
In the event of co-ownership, there are several options worth consid-
ering, and one to be avoided. The latter is the default route of future
patent co-ownership (e.g. co-ownership of a patent on a potential lead
compound that emerged from the co-owned molecule). Patent law

83
╇������������������������������������������������������������������������������������ For purposes of collation and determining overlap, the firm would already have pro-
vided this structural information to the intermediary. As discussed further in the
illustrative example below, structural information is probably the primary informa-
tion the firm would have. In particular, firms would be unlikely to contribute to the
pool molecules about which they had significant positive information.
84
╇ University participants in the partnership would be barred from seeking patents on
assays or targets prior to participation in the screening program. See below.
85
╇ For further discussion of the university perspective, as well as the perspectives of
other stakeholders, see below.
 Pathways across the valley of death: IP strategies 269

encourages strategic behavior on the part of co-owners by allowing

each one to “make, use, offer to sell, or sell the patented inventionâ•›…
without the consent of and without accounting to the other owners”.86
Although this default approach has the virtue of facilitating licensing
(because the consent of only one co-owner is needed), it also means
that disagreement between co-owners undermines the existence of an
effective patent monopoly. Under our current system of R&D finan-
cing, monopoly rights on drugs are critical for hedging the risk associ-
ated with the long and complex pre-clinical and clinical development
process.87
The simplest solution would allow the researcher to continue with
the firm he or she had chosen, notwithstanding co-ownership of one or
more hits. This option would be particularly useful if (as seems likely,
given that the threshold inquiry would presumably have found rela-
tively little overlap in contributions) only one or two molecules out of
the chosen firm’s set of hits were co-owned. The co-owner might then
be entitled to royalty-based compensation if the molecule in question
led to a marketable drug, but it would have avoided the cost and risk of
follow-on work.
In the rare case where all (or most) of the relevant molecules were
co-owned, the co-owning firms could set up a separate joint venture
that would hold future patent rights. In order to avoid antitrust con-
cerns in cases where the joint venture occupied a large share of the
relevant research space, one of the firms could remain a silent partner
that simply held a pre-determined equity stake in the joint venture.
Importantly, the initial framework agreement would specify the alter-
natives available in situations of dual ownership so as to rule out the
possibility of co-ownership of patents.
As noted earlier,88 it appears that some pharmaceutical firms have
already formed public–private partnerships with academic researchers

86
╇ See 35 U.S.C. § 262 (2000). See generally Merges, R.P. and Lawrence A. Locke,
‘Co-Ownership of Patents: A Comparative and Economics View’, 72 J. Pat. &
Trademark Off. Soc’y 586 (1990) (discussing possibilities for opportunistic behaviour
created by the law of co-ownership).
87
╇ See, e.g., Cohen, W.M. et al., ‘Protecting Their Intellectual Assets: Appropriability
Conditions and Why US Manufacturing Firms Patent (or Not)’, (Nat’l Bureau of
Econ. Research, Working Paper No. 7552, 2000), available at www.nber.org/papers/
w7552; cf. Lewis, T.R., Jerome H. Reichman and Anthony D. So, ‘The Case for
Public Funding and Public Oversight of Clinical Trials’, Economists’ Voice, Jan. 2007,
www.bepress.com/ev/vol4/iss1/art3/ (arguing that clinical trials should be treated as
a public good).
88
╇ See above note 41 and accompanying text.
270 A. K. Rai, J. H. Reichman, P. F. Uhlir and C. Crossman

whose published work indicates that they are working on interesting

targets. They have done so, however, on a limited, ad hoc basis. Our
first tier public–private partnership would provide a standardized plat-
form for the systematic formation of many more second tier relation-
ships than currently exist. Not only would the basis for forming such
relationships be put in place, but with routine access to a pool of high-
quality small molecule libraries guaranteed, one would also expect the
public sector to develop many more validated targets that would be of
interest to pharmaceutical companies.
Essentially, firms would be outsourcing assay development and tar-
get validation to individual academics who are well placed to do this
work, but who would otherwise be difficult to integrate into the firm
vertically as employees.89 As contrasted with vertical integration, a pub-
lic–private partnership would allow assay developers to run their assays
against a broad array of molecules held by multiple firms.

Tier 2: Beyond the veil of ignorance

Once the academic had chosen a prospective partner, second-tier
negotiations would commence. Because the terms of such second-tier
partnerships are likely to vary quite substantially depending on the
type of target at issue, we do not propose standard-form agreements
for this tier. Presumably, the negotiated contract enabling Tier€ 2
research would further specify the expected relations of the parties
during the drug development phase, and the distribution of expected
royalties from patented lead compounds. Assuming the drug develop-
ment process proved successful, and the patented drug passed clinical
trials and entered the stream of commerce, the patent owner (i.e., the
pharmaceutical firm) would obtain patent rents exactly as occurs at
present.
A possible complication could arise, however, if the scientist and
the pharmaceutical firm could not successfully conclude a second-tier
agreement. In that case, we would propose that the scientist retain the
opportunity to negotiate with the owners of other molecules that had
represented hits at Tier 1. The information obtained by the academic
in the negotiations with the first firm would, of course, remain subject
to confidentiality and non-disclosure agreements.

╇ Cf. Munos, B., ‘Can Open-Source R&D Reinvigorate Drug Research?’, 5 Nature Revs.
89

Drug Discovery 723, 723 (2006) (discussing the outsourcing of drug research-related
laboratory and clinical studies “to institutions with the requisite capacity through the
help of matchmaking software”).
 Pathways across the valley of death: IP strategies 271

If a Tier 2 partnership was formed and subsequently dissolved, the

magnitude of potential inter-firm information leakage could become
sufficiently great as to rule out allowing the scientist to negotiate with
other firms. In any event, the framework agreement for the partnership
would have to provide for both of these contingencies.
An important question to be addressed in the Tier 2 agreement
would concern the timing of any eventual publication by the academic.
Although we do not propose standard form agreements at Tier 2, the
framework agreement should ensure that the academic can publish
his or her findings as soon as appropriate arrangements for patent�
ability had been made. This would represent an improvement over the
�current situation, where the available empirical evidence indicates that
corpo�rate sponsors sometimes require academics to withhold data well
beyond the time necessary to file a patent.90

Option of a contractually constructed liability regime91

In addition to the structure outlined above, participating firms might
also agree on a supplementary system of royalties that would govern
compensation to any firm that had provided structural information
about its molecules to a researcher deciding among promising “hits.” In
other words, firms would be contracting into a subsidiary set of “take
and pay rules”, or liability rules, rather than relying entirely on exclu-
sive property rights.92 As a historical matter, liability rules have always
modulated between exclusive property rights, on the one hand, and
the public domain, on the other.93 In modern times, codified liability
regimes that provide ex ante entitlements to compensation for certain
uses (but not necessarily a right to exclude others from use) have been

90
╇ See, e.g., Blumenthal, D. et al., ‘Relationships Between Academic Institutions and
Industry in the Life Sciences – An Industry Study’, 334 New Eng. J. Med. 368, 371
(1996) (finding that 56% of corporate sponsors report that research results are some-
times kept confidential longer than the time required to file a patent).
91
╇ The term “contractually-constructed liability regime” is drawn from Reichman,€J.H.
and Paul F. Uhlir, ‘A Contractually Reconstructed Research Commons for Scientific
Data in a Highly Protectionist Intellectual Property Environment’, 66 Law &
Contemp. Probs. 315 (2003).
92
╇ The classic reference is, of course, Calabresi, G. and Douglas Melamed, ‘Property
Rules, Liability Rules, and Inalienability: One View of the Cathedral’, 85 Harv. L.
Rev. 1089 (1972); see also Merges, R., ‘Contracting into Liability Rules: Intellectual
Property Rights and Collective Rights Organizations’, 84 Cal. L. Rev. 1293 (1996).
93
╇ See, e.g., Reichman, J.H., ‘Saving the Patent Law from Itself: Informal Remarks
Concerning the Systemic Problems Affecting Developed Intellectual Property
Regimes’, in Kieff, F.S. (ed.), Perspectives on Properties of the Human Genome Project
289 (2003).
272 A. K. Rai, J. H. Reichman, P. F. Uhlir and C. Crossman

adopted in some intellectual property systems,94 and in at least one

international treaty.95
One feature of liability rules is that, even in the absence of legis�
lative fiat, they may be voluntarily adopted whenever stakehold-
ers seek to obtain a private ordering with outcomes that differ from
what the default rules of intellectual property law might otherwise
provide.96 For example, various commentators have discussed patent
pools as an example of contractually constructed liability rules.97
Similarly, contractually constructed liability rules are sometimes
used by patent holders as a mechanism for generating revenue from
background property rights. (Indeed, proponents of the “one mon-
opoly profit” thesis would argue that patent holders should gener-
ally be indifferent between using liability rules and exploiting their
monopoly exclusively.)98 When Stanford University famously made its
Cohen-Boyer patent on DNA manipulation techniques available to all
users willing to pay specified royalties under a non-exclusive license,

94
╇ See, e.g., Reichman, J.H., ‘Charting the Collapse of the Patent-Copyright Dichotomy’,
13 Cardozo Arts & Ent. L.J. 475, 504–20 (1995) (stressing the need for a new intel-
lectual property paradigm based on liability rules for cumulative and sequential
innovation); Reichman, J.H., ‘Legal Hybrids Between the Patent and Copyright
Paradigms’, 94 Colum. L. Rev. 2432, 2477 (1994) (discussing an Italian regime pro-
tecting construction designs and technical drawings); ibid. at 2480 (discussing the
British Design Law of 1988, since repealed by the E.U. Design Regulation); see also
Merges, above note 92, at 1308–9 (discussing 17 U.S.C. § 115, a liability regime for
sound recordings of copyrighted musical works).
95
╇ F.A.O. Res 3/2001, International Treaty on Plant Genetic Resources for Food and
Agriculture, 3 November 2001, www.fao.org/ag/cgrfa/itpgr.htm (imposing a com-
pensatory liability regime on those who make commercial applications derived from
public-domain seeds).
96
╇ See Reichman, J.H., ‘Of Green Tulips and Legal Kudzu: Repackaging Rights in
Subpatentable Innovation’, 53 Vand. L. Rev. 1743 (2000); see also Reichman, J.H.
and Tracy Lewis, ‘Using Liability Rules To Stimulate Innovation in Developing
Countries: Application to Traditional Knowledge’, in Maskus, K.E. and Jerome€H.
Reichman (eds.), International Public Goods and Transfer of Technology Under a
Globalized Intellectual Property Regime 337 ( 2005).
97
╇ See, e.g., Merges, above note 92, at 1340–52. As Merges discusses, the typical patent
pool involves multiple firms agreeing voluntarily to refrain from exercising their rights
to exclude. Instead of asserting patent rights, firms contribute the rights to a package
license that is available on reasonable terms either to participants in the pool or to all
comers. Ibid. In recent years, the pooling of patents around information technology
industry standards has become quite common. See, e.g., Shapiro, C., ‘Navigating
the Patent Thicket: Cross-Licenses, Patent Pools, and Standard Setting’, in Jaffe, A.
et€al. (eds.), 1 Innovation Policy and the Economy 119, 2001.
98
╇ For an excellent discussion of the implications of the “one monopoly profit” thesis
for platform technologies, and of situations where the thesis might not apply, see
Farrell,€ J. and Philip Weiser, ‘Modularity, Vertical Integration, and Open Access
Policies: Towards a Convergency of Antitrust and Regulation in the Internet Age’, 17
Harv. J.L. & Tech. 85, 104, 105–19 (2003).
 Pathways across the valley of death: IP strategies 273

it voluntarily converted the exclusive rights conferred by its patent to

a liability regime.99
As discussed further below,100 we believe the possibility of a liabil-
ity rule payment could induce greater participation by pharmaceutical
firms. This compensatory liability payment (say, on the order of 3–5%)
would become available to firms if any of their molecules fell within the
class of promising hits at the initial stage of high-throughput screen-
ing. Firms would accordingly benefit from income streams not only in
circumstances where they actually undertook the expensive and risky
follow-on work that led to a patented marketable drug, but also if they
contributed a small amount (in the form of structural information on
a hit) to upstream work. In this manner, firms could, to some extent,
mitigate the overall risks of drug development.101
The framework agreement for our proposed partnership would spell
out any ex ante liability rule entitlements that the participating firms
had agreed to adopt. The intermediary would also collect and share
data concerning the impact of the liability regime as a cost-sharing
and risk-reducing technique over time. However, in the event that such
obligations triggered antitrust difficulties or deterred participation
(perhaps because firms doing the follow-on work resisted the liabil-
ity rule as an unacceptable reach-through royalty),102 they remain an
optional feature of our proposal.

Adding new participants

The public–private partnership we propose would be most likely to
succeed if the founding members were firms with robust libraries that
continued to be active in the search for new targets. At the same time,
it would be inopportune, counterproductive, and possibly illegal as a
matter of antitrust law to foreclose the possibility that other firms might
join the pool. The pool members would thus be well advised to organize
from the outset the conditions of future membership.
Because of the manner in which the pool would be structured –
�specifically, the fact that private-firm researchers would not have any

99
╇ For a discussion of the Cohen-Boyer licensing strategy, see Rai and Eisenberg, above
note 45, at 300.
100
╇ See below.
101
╇ We also believe that the innovation-related benefits of a liability rule scheme (in
terms of inducing participation in the pool) are sufficiently large that a small royalty
paid to competitors should not be deemed to violate antitrust law. See below.
102
╇ See above note 38.
274 A. K. Rai, J. H. Reichman, P. F. Uhlir and C. Crossman

access to the small molecule pool and that even access by academic
researchers at Tier 1 would be restricted to information about poten-
tially promising hits – adding additional members should be relatively
straightforward. New members and their contributions would be pro-
tected by the same nondisclosure agreements as pre-existing mem-
bers. Similarly, hit molecules contributed by new members would be
treated in the same manner as hit molecules contributed by founding
members.
Notably, existing consortia, such as the PSTC, explicitly provide
for the addition of new members. Under the PSTC framework agree-
ment, new members that can contribute to biomarker validation and
pay membership fees are allowed into the consortium as a matter of
course.103

An illustrative example
Consider the following stylized example of the manner in which our
proposed public–private partnership would work.104 Many researchers
believe that Alzheimer’s disease is caused by the accumulation of short
protein fragments that are formed when certain precursor proteins
(known as amyloid precursor proteins) break down.105 An Alzheimer’s
researcher (Researcher A) in University B determines that a previ-
ously unknown protein (protein C) appears to be centrally involved
in the breakdown of amyloid precursor proteins. She creates an assay
designed to test whether a small molecule binds to protein C (“protein
C binding assay”).
Researcher A (and her employer, University B) have previously
complied with all the requirements for participation in the screening
pool. She and her university have signed the relevant non-disclosure
agreements and have posted the bond necessary to reinforce the per-
tinent non-disclosure rules. Thus, she is eligible to submit her assay
to the trusted intermediary who will screen it against the aggregate
collection of molecules that Companies 1, 2, and 3 have contributed
to the pool.
The trusted intermediary will have previously compared the struc-
ture of the molecules submitted by these companies and presumably

103
╇ Consortium Agreement, above note 68, § 3.3.
104
╇������������������������������������������������������������������������������������ Note that although the facts in this example are generally based on accurate scien-
tific information, they are intended for illustrative purposes only.
105
╇ See, e.g., Marchesi, V.T., ‘An Alternative Interpretation of the Amyloid Hypothesis
with Regard to the Pathogenesis of Alzheimer’s Disease’, 102 Proc. Nat’l Acad. Sci.
9093, 9093 (2005).
 Pathways across the valley of death: IP strategies 275

found only a small amount of overlap (e.g., only 10% of molecules were
owned by two firms and 1% were owned by three firms). Based on this
small amount of overlap, the companies had decided to go forward with
the pool.
The trusted intermediary proceeds to screen the combined molecule
libraries of all three companies against the protein C binding assay.
The intermediary then gives the results, which include the raw data
generated in the experiment, to Researcher A. In consultation with the
trusted intermediary, Researcher A determines that there is a group of
seven molecules that show significant activity and might lead to prom-
ising new drugs. The trusted intermediary informs A that these mol-
ecules are owned by Companies 1 and 3 – Company 1 owns three of the
molecules, and Company 3 owns the other four.
At this point, the trusted intermediary also informs Companies 1 and
3 that they have molecules that represent hits, but the companies do not
learn that they are hits on protein C specifically. Companies 1 and 3
can no longer withdraw the relevant molecules from the pool, and they
must provide Researcher A with information about the structures of the
hit molecules. Researcher A and the trusted intermediary analyze the
structures they have been given and the results of the assay, and on that
basis decide that Researcher A and University B should attempt to nego-
tiate a Tier 2 agreement with Company 3. If an agreement is reached
with Company 3, and subsequently results in a new drug, Company
1 may be entitled to a 3–5% royalty as provided for in the framework
agreement. If the negotiations with Company 3 fail, Researcher A and
University B have the option of negotiating with Company 1.
In the more complex case where one or a few of the molecules in
Company 3’s set of hits is also owned by another company (say Company
2), the decision-making process would be governed by the rules upon
which the stakeholders had previously agreed. For example, the frame-
work agreement might provide that in most cases, Researcher A could
simply continue working with Company 3, while Company 2 might
become entitled to some predetermined compensation but would not
participate in, or bear any risk associated with, downstream research.
In the rare case that the relevant molecules were all co-owned, the
framework agreement might enable Companies 2 and 3 to form a joint
venture that owned any resulting patent rights.106

106
╇ The possibility of using joint ventures in downstream work on a set of promising
molecules drawn from different sources would depend on the attitude of the rele-
vant antitrust authorities. We discuss the antitrust implications of these options
below.
276 A. K. Rai, J. H. Reichman, P. F. Uhlir and C. Crossman

If this and similar ventures were to succeed, the framework agree-

ment would have maximized opportunities to generate new drugs
by multiplying the number of assays that were screened against an
expanded chemical space. In this manner, our model would enable
complex and risky research that might not otherwise have occurred
under existing arrangements. More importantly, it could enable and
greatly increase the likelihood of breakthrough therapeutic results on
significant diseases.

Single firm public–private partnerships

As previously observed, even if the trusted intermediary determined
that the molecules that firms had contributed overlapped substantially,
it would still be in the firms’ interest to undertake some sort of collab-
orative approach. In that case, however, a better approach might rely
on one or more single firm public–private partnerships. A single-firm
partnership would give academic researchers the opportunity to screen
their assays against that portion of the firm’s library that the firm chose
to make available.
Single firm public–private partnerships would not require the level of
organizational infrastructure required by a broader pooling approach.
A willing firm might simply invite interested academic researchers to
submit assays, which it would then screen in-house against some subset
of compounds within its proprietary library. However, a trusted inter-
mediary might remain useful in this context, especially if it could assist
the firms in identifying potential academic research participants and
their associated institutions.
For example, in the context of tropical diseases targets, it appears that
the World Health Organization’s (WHO) Tropical Disease Network
has organized a consortium of researchers who are interested in screen-
ing their targets against pharmaceutical firm libraries. Three firms –
Pfizer, Merck Serono and Chemtura – are now allowing this “TDR
Compound Evaluation Network” to submit targets for in-house screen-
ing against a subset of the firms’ respective chemical libraries.107 The
trusted intermediary might also help to fund the academic scientists,
guard against misappropriation of unpatented results by participants
in the partnership, and set the conditions of eventual publication of
research results.
Because the private side of the partnership would, at any given time,
be limited to a single firm, there would be no need for a two-tiered

╇ Hopkins, Witty and Nwaka, above note 67, at 169.

107
 Pathways across the valley of death: IP strategies 277

regime. Rather, qualified academics would simply submit assays to the

firm in question. If and when a particular screening assay yielded a
group of hits, the academic and the firm would then negotiate the terms
of a public–private development partnership. As with the multi-firm
partnership, the private firm would be free to withdraw molecules from
the screening process up to the point when the molecule yielded a hit.
In the event that screening against the library of a given firm yielded
no interesting hits, the academic investigator might want to submit the
assay to other firms that had made a subset of their libraries available.
However, because anonymity could not be preserved in a single-firm
arrangement, “sequential” screening would depend on the first firm’s
willingness to permit it.

17.5 Analyzing the collaboration: stakeholder incentives

and€tradeoffs
Having outlined the basic principles of our two-tiered proposal, we turn
to a detailed discussion of the incentives that would induce stakeholders
to enter into such an arrangement. We also briefly discuss salient anti-
trust issues pertinent to our proposal.

Firms’ perspective
Pharmaceutical firms stand to gain a great deal, and lose little, through
participation in our proposal. Current efforts to generate truly novel
drugs are failing. Our proposal would leverage the expertise of pub-
licly funded researchers in a manner that redounds to the benefit of the
pharmaceutical industry as a whole while limiting aggregate costs and
generating considerable efficiencies in the upstream research process.
Firms will be concerned about the risk that potentially important
trade secret information (specifically, molecular structure and the fact
that a particular molecule shows activity against an assay) might leak
over to competitors. For this reason, only academic researchers should
be allowed access to such information. Those researchers who identi-
fied a promising molecule would be deterred from misappropriation
not only by contractual obligations and required bonding, but also by
their need to partner with the firm contributing the most promising
molecule in order to commercialize the research results.
By contrast, allowing private-sector researchers entry into the pool
would create undue risk of misappropriation and industrial espionage.
Fear of such misappropriation might deter firms from entering the pool
in the first instance. Alternatively, firms might be tempted to contribute
278 A. K. Rai, J. H. Reichman, P. F. Uhlir and C. Crossman

only “bad” molecules. Indeed, fear of misappropriation is so great that

various efforts to foster even a limited amount of inter-firm information
exchange about molecular library contents in the past have foundered
on the inability of firms to sufficiently disguise or mask information
about molecular structure.108 Restricting participation to academic sci-
entists – a prominent feature of our proposal – should prove attractive
from the firms’ perspective.
Moreover, even with respect to academic researchers, access to mol-
ecules would remain quite limited. The trusted intermediary would
conduct the high-throughput screening on submitted assays. At Tier 1,
academic researchers would receive results (and accompanying struc-
tural information) only with respect to molecules that represented hits.
In exchange for this information, firms would be rewarded with the
possibility of a collaboration as well as a potential royalty even if their
firm was not chosen to undertake downstream development.
However, leakage of some structural information between firms
might occur in certain circumstances, namely, when an assay revealed
hit molecules from two different firms. If an academic moved on to a
Tier 2 collaboration with one firm, there is some concern that he might
inappropriately use information about the other firm’s molecule(s).
Similarly, if Tier 2 negotiations with one firm fell through, the researcher
might take information derived from those negotiations into conversa-
tions with a second firm.
To forestall these possibilities, the framework agreement for the part-
nership should explicitly prohibit researchers from using information
derived from one firm in their dealings with another firm. Enforcement
of such a provision might prove difficult, however. Thus, the firm that
was not chosen might be best rewarded for the risk of some level of leak-
age through the contractually constructed liability scheme discussed
above.109

Academic researchers’ perspective

Researchers, and their universities, should be motivated to partici-
pate in the collaboration through financial incentives and the potential
for groundbreaking discoveries. If academic researchers succeeded in

108
╇ See Wilson, E.K., ‘Is Safe Exchange of Data Possible? Modelers in Need of
Proprietary Compounds Seek Ways To Share Information, But Not Structure’,
Chemical & Engineering News, 25 April 2005, at 24, available at http://pubs.acs.org/
cen/science/83/8317sci1.html (describing efforts to enable “safe exchange” of chem-
ical structures).
109
╇ See above.
 Pathways across the valley of death: IP strategies 279

validating a target, they, and their universities, would find themselves

in a strong position to negotiate a favorable Tier 2 agreement with one
of the companies contributing hit molecules.
The academics would bring to the table their substantial knowledge
of the assay and target, and the pharmaceutical firm would bring its
information concerning the relevant molecule, its expertise in medi-
cinal chemistry, as well as all of its downstream development resources.
If the resulting partnership yielded a commercially successful drug, the
researcher and his university would secure a share of the revenues.110
They would also secure a reputational gain through eventual publica-
tion of the breakthrough research.
In our view, these financial and reputational benefits to the public
research community should help to offset delays in publication that
participating firms might deem necessary to protect commercially
valuable information. Specifically, as noted earlier, the researcher
exploring chemical space at Tier 1 would have to sign a nondisclo-
sure agreement with respect to any structural data on molecules that
he or she received.111 Additionally, at Tier 2, the researcher must be
willing to forego publication of commercially valuable information
until relevant patents (e.g. on promising lead compounds) had been
filed.
The ultimate financial benefits should also mitigate certain limita-
tions on university patenting that are likely corollaries of our proposed
public–private partnership. Under current law, universities are enti-
tled to seek intermediate patents on validated targets. In the proposed
collaboration, universities would forgo such patents in exchange for a
transactional commitment at Tier 2 by the pharmaceutical company
to a revenue stream from any drug that was ultimately developed. This
revenue stream would recognize the significant research contribution
of the university and its researcher.

110
╇ Note that this is a different claim from the argument that technology licensing
(e.g., patent licensing) is likely to bring in substantial revenue. As many obser-
vers have noted, university patent licensing generally involves upstream technol-
ogy with uncertain payoffs and therefore revenues are typically quite small. Only
in the relatively unusual circumstance where the university sells rights to a drug is
the revenue payoff substantial. See, e.g., Press Release, Emory University, Gilead
Science and Royalty Pharma Announces $525 Million Agreement with Emory
University To Purchase Royalty Interest for Emtricitabine (18 July 2005), avail-
able at www.news.emory.edu/ Releases/emtri/ (describing payment of $525 million
for sale of royalty rights to anti-AIDS drug). Our proposal similarly would involve
partnerships dealing with end-product drugs; therefore, revenue payoffs could be
substantial.
111
╇ See above.
280 A. K. Rai, J. H. Reichman, P. F. Uhlir and C. Crossman

Perspective of the trusted intermediary

In order for the proposed public–private partnership to take off, the
trusted intermediary would probably have to provide some seed fund-
ing. Specifically, the intermediary might, at least initially, bear the cost
of funding researchers to develop assays, of conducting high-through-
put screening, and of general pool administration. However, once the
concept of pooling small molecule libraries had proved to be scientific-
ally and economically viable, the firms themselves should be willing to
subsidize many, if not all, of the activities in the collaboration.
If the trusted intermediary were the NIH, or an NIH-funded proxy,
our proposal could be seen as complementary to its Molecular Libraries
Initiative. While the MLI is likely to prove very useful in advancing basic
knowledge about biological pathways, lack of access to small molecule
libraries held by pharmaceutical firms may limit its success in target
validation. At a minimum, the MLI will not typically result in potential
lead compounds. More generally, two of the three themes highlighted
in the current NIH Roadmap for Medical Research – encouraging
“new pathways for discovery” and supporting “research teams of the
future”,112 (including interdisciplinary work and public–private part-
nerships) – are specifically promoted by the terms of our proposal.
The pharmaceutical companies could, of course, foot the bill for
the entire initiative and establish their own trusted intermediary. We
believe, however, that participation of a public entity remains desir-
able, even if the operation were totally funded by the private sector. For
example, the presence of a public-sector player would greatly simplify
relations with academia and add a layer of indirect enforcement of non-
disclosure rules that would reassure the participating firms. Likewise,
a public sector presence would reinforce the academic scientists’ expecÂ�
tations that the public interest in shared research results would ulti�
mately be respected, without compromising either side’s intellectual
property rights. Finally, the presence of a public-sector player would
greatly facilitate negotiations between the trusted intermediary and the
antitrust authorities over time.

Antitrust concerns and the public interest

If successful, our proposal would necessarily entail some level of col-
laboration between firms that represent a significant percentage of the

╇ Nat’l Insts. of Health, NIH Roadmap for Research (2006), http://nihroadmap.nih.
112

gov/ pdf/NIHRoadmap-FactSheet-Aug06.pdf.
 Pathways across the valley of death: IP strategies 281

pharmaceutical industry. For the most part, only limited inter-firm

R&D coordination or exchange of information would occur – largely
confined to contexts where complementary assets had to be deployed
in order to maximize research potential. Thus, we believe that our
�proposal should pass muster from the standpoint of both normative
economic analysis and antitrust doctrine.
The question of whether a competitive or concentrated (perhaps even
monopolistic) market structure best promotes innovation has long been
mooted in the economic literature. Joseph Schumpeter famously argued
that concentration promotes risky innovation by allowing firms to limit
diffusion of knowledge to competitors and thus appropriate more fully
the benefits of their innovative efforts.113 In contrast, Kenneth Arrow
and others have asserted that monopoly power can dull incentives to
innovate, particularly in situations where a new product would displace
a product already produced by the monopolist.114
As antitrust doctrine has expanded its focus beyond end product
markets, it too has examined the relationship between competition
and innovation. Influenced by Arrow’s work, in the mid-1990s the
Federal Trade Commission (FTC) and the Antitrust Division of the
Department of Justice (DOJ) adopted an “innovation markets” ana-
lysis, which looks at competition in the R&D processes that produce
end products.115 Under innovation markets analysis, a joint venture,
licensing agreement, or merger is suspect if it unduly limits the num-
ber of competing innovators and yields no offsetting innovation-related
efficiencies.
Although innovation markets analysis might imply a relatively strict
review of R&D collaborations, the DOJ and FTC have emphasized
how difficult it is to define an innovation market.116 In practice, the
overriding focus in most cases is not market definition but whether
the �collaboration is likely to accelerate or slow the pace at which R&D

113
╇ See Schumpeter, J.A., Capitalism, Socialism and Democracy 81–106 (1942).
114
╇ See, e.g., Arrow, above note 32. For a summary of these arguments, see Rai, above
note 26, at 824–5.
115
╇ Dep’t of Justice & Fed. Trade Comm’n, Antitrust Guidelines for the Licensing of
Intellectual Property § 3.2.3 (1995) [hereinafter DOJ, Intellectual Property], available
at www.usdoj.gov/atr/public/guidelines/0558.htm (defining innovation markets); see
also Dep’t of Justice & Fed. Trade Comm’n, Antitrust Guidelines for Collaborations
Among Competitors § 3.32(c) (2000) [hereinafter DOJ, Collaboration], available at
www.ftc.gov/os/2000/04/ftcdojguidelines.pdf (discussing innovation markets).
116
╇ “The Agencies will delineate an innovation market only when the capabilities to
engage in the relevant research and development can be associated with special-
ized assets or characteristics of specific firms.” DOJ, Intellectual Property, above
note€115, § 3.2.3; see also DOJ, Collaboration, above note 115, § 3.32(c).
282 A. K. Rai, J. H. Reichman, P. F. Uhlir and C. Crossman

efforts are pursued.117 The agencies specifically recognize that “[t]

hrough the combination of complementary assets, technology, or know
how, an R&D collaboration may enable participants more quickly or
more efficiently to research and develop new or improved goods”.118
In the case of our proposed collaboration, the reality that R&D on
new drug targets is very expensive and risky should make antitrust
authorities more disposed towards a Schumpeterian perspective on the
resulting pharmaceutical innovation. Nonetheless, two aspects of our
model might concern antitrust regulators. First, the optional liability
rule scheme we have proposed might be seen as a reach-through roy-
alty that dulled incentives on the part of the firm enjoying the royalty
to innovate independently. However, we think it is unlikely that a small
royalty stream would significantly affect such incentives. The situation
where no one works on a molecule that modulates a new target is much
more likely. Indeed, it is the status quo.
The second antitrust difficulty might involve the situation where
�co-ownership of molecules required a substantial compensatory royalty
or even a joint venture. In both cases, the argument in favor of allow-
ing collaboration would rest on the fact that the assets in question were
�co-owned and therefore complementary.
To address antitrust concerns expeditiously, we would propose
that the initial framework agreement expressly address questions of
�co-ownership (and, if desired, liability rules), and that this agreement be
vetted by the antitrust authorities before any collaborative work began.
The PSTC framework agreement provides an instructive example.
It contains an “antitrust statement” that limits inter-firm sharing of
information to that necessary for purposes of biomarker validation and
allows consortium members to pursue independent biomarker vali�
dation projects.119 We would envision a similar statement addressing
antitrust concerns in our framework agreement.

17.6 Conclusion: broader implications of the

collaborative€approach
In developing our proposal for greater access to small molecule librar-
ies, we have drawn upon models of inter-firm collaboration that the
pharmaceutical industry is currently using for biomarkers. However,
our approach is designed to work in settings different from the creation

╇ DOJ, Collaboration, above note 115, § 3.31(a). 118╇ Ibid.

117

╇ See Consortium Agreement, above note 68, at exhibit A.

119
 Pathways across the valley of death: IP strategies 283

of biomarker standards, where rights in collaborative outputs must be

tightly protected.
For example, a similar approach may be useful in advanced materials
engineering research. Such research represents a context where inter-
firm transfer of inchoate and unpatented, but nonetheless valuable,
information is desirable.120 Contract-based exchange can be imple-
mented so long as the connection between the inchoate information
put in ex ante and the codified, differentiated information that emerges
ex post is reasonably clear. The presence of a trusted intermediary that
polices contract breaches and prevents undesirable spillovers is also
important.
Our proposal attempts to embody all the features that are likely to
facilitate contract-based exchanges of pre-patentable, but nonetheless
valuable, information. If academics and pharmaceutical firms are inter-
ested in truly innovative drug discovery, they should experiment with
this effort to forge new and viable pathways across what has hitherto
proved to be a largely impassable valley of death.

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18 Case 10. The International Treaty on
Plant€Genetic Resources for Food
and Agriculture (ITPGRFA)
The Standard Material Transfer Agreement
as implementation of a limited compensatory
liability€regime

Victoria Henson-Apollonio

18.1 Introduction
Exchange of crop germplasm, usually in the form of seeds, is essen-
tial to obtain new sources of disease and pest resistance, improved
nutritional characteristics and other desirable and necessary traits,
in the breeding
� of crops grown to provide food for the sustenance of
humanity. Historically, seeds, as well as slips and tubers for propaga-
tion have been carried by travellers of all sorts – farmers, explorers and
Â�adventurers€– to share with crop breeders who eagerly await new inputs
as they attempt to provide seeds and plant materials that fit the current
needs of local farmers. Farmers and other breeders of crop varieties
have always depended upon exchange of seeds as a reservoir of inher-
ited characteristics as the history of every domesticated crop shows.
Breeding pedigrees of spring bread wheats, for example, have shown
that up to 4,500 different parental combinations, involving the con-
tributions of 3,800–4,000 original parents, were used to produce one
variety of wheat that was released in India.1 Although wheat originated
from the fertile crescent
� of Mesopotamia ~7500BC, modern varieties
�
contain materials obtained from all over the globe.2 The breeding of

1
╇ Cassady, K., Fowler, C., Heisey, P.W., and Smale, M., 2001. Benefits from giving
and receiving genetic resources: the case of wheat, 127 Plant Genetic Resources (PGR)
Newsletter, 1–10 using data from Smale and McBride, 1996.
2
╇ According to Day Rubenstein, K., Heisey, P., Shoemaker, R., Sullivan, J., and Frisvold,
G. 2005. ‘Crop Genetic Resources: An Economic Appraisal’, Economic Information
Bulletin No. (EIB2) 47, USDA: “Furthermore, useful landraces of some crops have
been found in parts of the world other than those in which they were originally domes-
ticated. For example, wheat landraces found in the pedigrees of many modern wheat

289
290 Victoria Henson-Apollonio

existing materials with newly obtained genetic stocks ensures that

planting materials for next year’s crops contain a complement of genetic
alleles (choices) that provide farmers with planting �varieties resulting in
the best possible yields of desirable crops.

18.2 Collection of germplasm

Collections of germplasm – seed banks, also called gene banks – have
been set up by national and international institutions to house inter-
national collections of plant germplasm that can be distributed to
crop breeders upon request.3 Together the Alliance Centers of the
Consultative Group on International Agricultural Research (CGIAR)
house the world’s largest ex situ collection of seeds and germplasm
material of crop plants in the world.4 Center scientists are involved in
the �conservation, �characterization, breeding and distribution of germ-
plasm to users throughout the world and thus fill the role of a central
element in the global seed bank system.5 Accordingly, the Centers have
been involved in providing policy advice, both at the national and the
international level to ensure that seed exchange can continue, in light
of developments such as the Convention on Biological Diversity (CBD).
With a heightened awareness of the national heritage that biological
genetic diversity can represent for a country, the transactional costs of
collecting seeds of local crop varieties have become much higher and
seed exchange has come to a standstill in many areas of the world.

18.3 Exchange of germplasm

To address this issue, the Food and Agriculture (FAO) of the United
Nations (UN), in conjunction with member countries as well as the
CGIAR, worked to negotiate a treaty that would facilitate the exchange
of crop germplasm for food and agricultural uses. The final text of
the International Treaty on Plant Genetic Resources for Food and

varieties have come from every continent except Antarctica.” Heisey has indicated that
“Landraces are usually varieties developed in traditional agriculture by many€years of
farmer selection. They are not the result of planned crosses between two distinct breeding
lines.” (Heisy, P., 2002). ‘International Wheat Breeding and Future Wheat Productivity
in Developing Countries’, in Wheat Yearbook/WHS-2002/March 2002. 24–33).
3
╇ Collections of germplasm may include seeds, tubers, plantlets, and perhaps in the
future even individual genes and thus the original name may be replaced by “gene
bank”.
4
╇ Information about this collection is available at http://singer.grinfo.net.
5
╇ Reynolds, M.P. and Borlaug, N.E., 2006. Centenary Review: Impacts of Breeding on
International Collaborative Wheat Improvement, 144 Journal of Agricultural Science
Number, 3–17.
 Case 10. The ITPGRFA 291

Agriculture (IT-PRGFA) was adopted by a conference of FAO on 3

November 2001. The importance of this treaty can be appreciated by
the fact that none of the 167 FAO-Commission on Genetic Resources
for Food and Agriculture-member countries voted against this approval,
which culminated seven years of negotiations over the exchange of crop
germplasm materials. The Treaty’s main provisions promote the rec-
ognition of farmers’ efforts in conservation of PGRFA and their sus-
tainable use, through promoting farmer’s rights. In addition, it sets up
a Multilateral System, (MLS) of Access and Benefit-Sharing, for facili-
tated exchange of germplasm among member countries of the treaty as
well as international seed banks, such as the CGIAR genebanks. Initially
the MLS will apply to a list of about sixty-five food crops and forages.
The MLS will provide facilitated access to PGRFA for research, breed-
ing and education; benefit-sharing arrangements; a funding strategy;
and agreement on terms of access to important collections managed by
international agricultural research centers. The means of implemen-
tation of the ITPGRFA is through a standard material transfer agree-
ment (SMTA) that was approved by the First Meeting of the Governing
Body, held in Madrid 12–16 June 2006.6 The CGIAR Centers placed
their collections in a trust created by the treaty, by signing agreements
with FAO on behalf of the Governing Body of the ITPGRFA in October
of 2006 and began using the SMTA to implement the transaction for
distribution of germplasm in January 2007.
Compensatory liability regimes have been proposed by several
authors as a way to minimize transaction costs in sharing resources in
general7 and to specifically facilitate access and benefit sharing with
regard to genetic resources.8 Such regimes have been described as “take
and pay”,9 wherein materials or property is taken with the resulting
liability to pay for what is taken. The SMTA, which is a private contract
between the provider of the germplasm and the recipient, incorporates
a mandatory scheme of compensatory liability upon the commercializa-
tion of seed or crop germplasm products, when such product is unavailable

6
╇ Text of the ITPGRFA and the SMTA can be found at the website: www.planttreaty.
org. Background documents related to the negotiations leading to the SMTA can be
found at www.fao.org/AG/cgrfa/gb1.htm.
7
╇ See Rai, A.K., Reichman, J.H., Uhlir, P.F. and Crossman, C., ‘Pathways Across
the Valley of Death: Novel Intellectual Property Strategies for Accelerated Drug
Discovery’, Chapter 17 of this volume.
8
╇ Okediji, R, 2005, ‘Access and Benefit-sharing and the ABS and the Interface with Existing
IP Systems: Limits and Opportunities’, in Interface International Expert Workshop on
Access to Genetic Resources and Benefit Sharing: Record of Discussion, Cuernavaca,
Mexico, October 24–27, 2004. CONABIO and Environment Canada, Mexico.
9
╇ Calabresi and Melamed, 1972, as cited in Rai et al., Chapter 17 of this volume.
292 Victoria Henson-Apollonio

for further breeding.10 Annex 2, of the SMTA states that “If a recipient, its
affiliates, contractors, licensees, and lessees, commercializes a product
or products, then the recipient shall pay one point-one percent (1.1%) of
the sales of the product or products less thirty percent (30%).” The pay-
ments are to be made into a trust account, established by the Governing
Body of the Treaty as a mechanism for sharing the monetary benefits
generated by use of germplasm from the MLS. Although some, such as
Okediji (2005) have admonished that such contractual arrangements
should guarantee benefit-sharing at an earlier stages rather than at the
royalty-bearing or commercialization stage, the negotiations were not
able to attain such conditions. And, in reality, because of the length
of time that it takes for breeding and testing material, as well as seed
multiplication, this compensation will likely happen several years after
material is accessed and then usually only if the particular product
is protected by a form of license or intellectual property rights (such
as a utility patent protection) that specifically excludes the recipient
of the material from using the product as a parent in future breeding
schemes. However, the SMTA also includes a voluntary, ex ante system,
Annex€ 3, the ‘Alternative Payments’ scheme whereby a recipient can
opt, at the time the material is accessed, to promise to pay a fee on the sales
of any product that are plant genetic resources for food and agriculture
where any material has been accessed that is of the same species at a
rate of 0.5% of the sales of any product derived from such plant gen-
etic resources. In other words the voluntary system is independent of
whether or not the product is available without restriction. (This vol-
untary option is also called the “African Proposal”, as it was brought to
the negotiating table by the African group.11)

18.4 Concluding remark: “Watch this space”

Because use of the SMTA is so recent, there is little data available yet to
indicate the effect of this compensatory scheme – either with regards to
facilitation of the exchange of germplasm, in general or in its effect on
the collection of monies resulting from commercialization. However,

10
╇�������������������������������������������������������������������������������������The exact text from the SMTA is as follows: “6.7 In the case that the Recipient com-
mercializes a Product that is a Plant Genetic Resource for Food and Agriculture and
that incorporates Material as referred to in Article 3 of this Agreement, and where
such Product is not available without restriction to others for further research and
breeding, the Recipient shall pay a fixed percentage of the Sales of the commercial-
ized Product into the mechanism established by the Governing Body for this purpose,
in accordance with Annex 2 to this Agreement.
11
╇ Declaration of Bern, Available at the URL: www.evb.ch/cm_data/ABS_under_the_
ITPGR_engl_2_2_2.pdf.
 Case 10. The ITPGRFA 293

the excitement and the increase in overall positive outlook of crop

breeders worldwide, signal that the signing of the ITPGRFA, the com-
ing into force of the treaty and the successful negotiation of the SMTA
bode well for enhanced exchanged of material in crop improvement
strategies for the future.

R eferences
Cassady, K., Fowler, C., Heisey, P.â•›W., and Smale, M., 2001, ‘Benefits from
Giving and Receiving Genetic Resources: the Case of Wheat’, 127 Plant
Genetic Resources (PGR) Newsletter, 1–10.
Day Rubenstein, K., Heisey, P., Shoemaker, R., Sullivan, J., and Frisvold,
G., 2005, ‘Crop Genetic Resources: An Economic Appraisal’, Economic
Information Bulletin No. (EIB2) 47, USDA.
Heisy, P., 2002, ‘International Wheat Breeding and Future Wheat
Productivity in Developing Countries’, in Wheat Yearbook/WHS-2002/
March 2002, 24–33.
Okediji, R, 2005, ‘Access and Benefit-sharing and the ABS and the Interface
with Existing IP Systems: Limits and Opportunities’, in Interface
International Expert Workshop on Access to Genetic Resources and
Benefit Sharing: Record of Discussion, Cuernavaca, Mexico, 24–27
October, 2004. CONABIO and Environment Canada, Mexico.
Rai, A.â•›K ., Reichman, J.â•›H., Uhlir, P.â•›F. and Crossman, C., ‘Pathways
Across the Valley of Death: Novel Intellectual Property Strategies for
Accelerated Drug Discovery’, Chapter 17 of this volume.
Reynolds, M.â•›P. and Borlaug, N.â•›E ., 2006, ‘Centenary Review: Impacts
of Breeding on International Collaborative Wheat Improvement, 144
Journal of Agricultural Science, 3–17.
Smale, M. and T. McBride 1996, ‘Understanding global trends in the use
of wheat diversity and international flows of wheat genetic resources’,
Part€1 of CIMMYT 1995/96 World Wheat Facts and Trends: Understanding
Global Trends in the Use of Wheat Diversity and International Flows of
Wheat€Genetic Resources. Mexico, D.F.: CIMMYT.
19 Critical analysis: property rules, liability
rules and molecular futures
Bargaining in the shadow of the cathedral

Dan L. Burk

19.1 Introduction
The chapters in this volume on pharmaceutical development and on
the International Treaty on Plant Genetic Resources for Food and
Agriculture (ITPRGFA) are oriented toward the use of liability rules to
promote innovation. Each describes an attempt to re-align the incen-
tives of innovators by structuring a set of contractual options that will
overcome the barriers to investment. In response to the formidable bar-
riers to development of viable pharmaceuticals from private libraries
of receptors and ligands, Rai et al. propose the creation of a private
molecular “semi-commons” of pooled molecules from which promis-
ing drug targets could be tested, and for which a contributor would be
paid if a viable product resulted.1 In a similar vein, Henson-Apollonio
reports on the structure of the ITPRGFA, which allows use of ge�netic
resources with the guarantee of a royalty if a contributor’s variety
is€used.2
A common feature of these systems is a type of conscription mecha�
nism that permits a participant in the system to use intellectual property
(IP) without a direct negotiation with the IP owner. Users of an asset
are required to pay for their use of the asset; they cannot be refused use
of that asset but they control the decision whether to take the asset or
not. In other words, owners of the asset have a right to payment, but
not a right to exclude. Following the nomenclature developed in the
faÂ�mous Calebresi and Melamed article on ‘Property Rules, Liability
Rules, and Inalienability: One View of the Cathedral’, we dub such
1
╇�����������������������������������������������������������������������������������Rai, A.K., Reichman, J.H., Uhlir, P.F. and Crossman, C., ‘Pathways across the val-
ley of death: novel intellectual property strategies for accelerated drug discovery’,
Chapter 17 of this volume.
2
╇ Henson-Apollonio, V., ‘Case 10. The International Treaty on Plant Genetic Resources
for Food and Agriculture: the Standard Material Transfer Agreement as implementa-
tion of a limited compensatory liability regime’, Chapter 18 of this volume.

294
 Critical analysis: property and liability rules 295

payment regimes as ‘liability rules’ as opposed to regimes of exclusivity,

or ‘property rules’.3
Yet the incentive structure of these systems employs liability rules
with a particular structure, in very particular circumstances. The Rai
et al. proposal contemplates a two-stage process of agreement to test-
ing, then the option of payment or further collaboration, depending
upon the outcome of such testing. In describing the proposal of Rai
and her co-authors, I use the term option advisedly, indeed deliberately,
as it has economic meaning beyond its colloquial usage to designate a
particular type of contract employed in futures markets. One might
say that the proposal attempts to construct a type of futures market in
molecular options, facilitating trading under the scientific uncertainty
of matches between receptors and ligands. And although it may not be
immediately obvious, the liability rules schema of the ITPRGFA shares
the same features of institutional design.
In this comment, I shall attempt to set in context the characteristics
of such liability regimes, particularly the incentive choices that might
guide us to choose them or to reject them. In that effort, I draw heavily
upon the recent literature analyzing property and liability rules from
the standpoint of options and information theory. I begin by briefly
reviewing the structure of liability rules and their relationship to the
property rules that typically characterize the IP regime. I then turn to
the literature analyzing asset entitlements as options, including the very
nascent literature on IP and real options. I conclude with some observa-
tions regarding the allocative choices that we might make in a proposal
like that of Rai et al., including some possibilities not considered in
their paper. My goal in all of this is to situate the ITPRGFA and the
Rai et al. proposal within both the landscape of property theory and the
existing literature.

19.2 Liability in the cathedral

Although we commonly use the term “property” to refer to intellectual
and tangible assets, it is exceptionally rare in practice to find a pure
property regime in the sense of exclusivity. Property rules are typically
subject to a host of exceptions. Easements, takings, compulsory licenses
of various sorts tend to overlay and modify property rights, whether
in real or IP.4 Similarly, pure liability regimes are exceptionally rare;

3
╇ Calabresi, G. and Melamed, A.D., ‘Property Rules, Liability Rules, and Inalienability:
One View of the Cathedral’, 85 Harvard Law Review, 1972, 1089.
4
╇ Burk, D., ‘Muddy Rules for Cyberspace’, 21 Cardozo Law Review, 1999, 121.
296 Dan L. Burk

�
non-consensual uses are typically limited in time or space, triggered
by certain events, subject to some type of reservation or control by the
holder of the asset. Property owners typically have the right to exclude
all but certain defined classes of users under particular circumstances.
Asset owners seldom have complete control over the disposal of the asset,
but compulsory licensees seldom have complete freedom as to use.
Recognizing that assets are almost always subject to mixed regimes
of exclusive rights and compulsory licensing leads inevitably to a second
insight about entitlements: that entitlements to an asset are rarely uni-
fied, complete packages; they are more often split among two or more
stakeholders. Familiar divisions of entitlements include physical or
temporal or situational divisions. A less immediately obvious division
under liability rules is a relational division. Liability rules are by defi�
nition not exclusive; one party has a right to take, the other has the
right to be paid for the taking. Such divided entitlements mean that the
different stakeholders must deal with one another in some fashion; they
are tied together by their shared rights to the asset.5
Additionally, the criteria by which either a property or a liability
regime is applied to an asset may differ. The application of either prop-
erty or liability regimes may be determined by clear, ex ante rules, or
it may be determined ex post, after a taking, according to flexible stan�
dards.6 The type of legal imperative under which assets are allocated
also has implications for the relationships between claimants. The more
vague or muddy entitlement criteria are, the more multiple stakeholders
will be required to deal with one another, as it will be less clear where
one entitlement begins and another ends, or when and how new sets
of entitlements might be triggered. Thus the type of legal imperative
under which allocations are determined may also be considered as a
partition of asset entitlements.7
In previous work I have attempted to map the conceptual space
defined by these entitlement parameters.8 I have argued that a useful
visualization of allocation regimes can be plotted along the �dimensions
of property vs. liability, divided vs. complete, and rules vs. stan�
dards entitlements. Each of these dimensions constitutes a �separate
�continuum rather than a binary choice of entitlements, and a given
property �allocation will have characteristics along each of these dimen-
sions; it may be a liability regime with clear, complete �entitlements, or

5
╇ Rose, C., ‘The Shadow of the Cathedral’, 106 Yale Law Review, 1997, 2175.
6
╇ Rose, C., ‘Crystals and Mud in Property Law’, 40 Stanford Law Review, 1988, 577.
7
╇ Johnston, J.S., Bargaining Under Rules Versus Standards, 11 Journal of Law, Economics
and Organizations, 1995, 256.
8
╇ Burk, ‘Muddy Rules’.
 Critical analysis: property and liability rules 297

Property

Strong
Property

Complete

Clear

Figure 19.1 Possible entitlements in property law

an exclusive property regime with muddy, divided entitlements, or any

of myriad other combinations in the three. If each of these continua
is viewed as an axis in a coordinate system, a space of possible prop-
erty entitlements is mapped, each point within that space represent-
ing a different combination of entitlement parameters (as shown in
Figure€19.1).
The point of this illustration is that there is a broad range of pos-
sible entitlements in property law. The law and commentary on IP
are filled with comparisons to the law of tangible property, and typic-
ally to the law of real property. These comparisons are frequently not
merely uni-dimensional, but a-dimensional; they contemplate a single
point in the property regime space that I have mapped out, ignoring
the continuum of possible rules and allocations, assuming or assert-
ing that property, by definition, can only constitute the prototypical
Blackstonian “sole and despotic” control over a particular good. As
I have argued elsewhere, this Blackstonian prototype is an idealized
fiction, and often an ideological fiction.9 The law of real property in
fact has never contemplated a regime of pure exclusivity, but instead
incorporates a range of �allocative regimes under a variety of labels:
easements, takings, nuisance and so on. And indeed, there is an
important additional set of dimensions to property allocations that we
have not yet considered.

9
╇ Burk, D., ‘Legal Consequences of the Cyberspatial Metaphor’ in Consalvo, M., et al.
(eds.) Internet Research Annual Volume 1: Selected Papers From the Association of Internet
Researchers Conferences 2000–2002, New York, Peter Lang.
298 Dan L. Burk

19.3 Real options in the cathedral

I have so far said little about the placement of allocations between
different claimants to the asset. And it is this question of vesting,
even more than the nomenclature of liability and property, to which
the Calabresi and Melamed article owes its fame. The prototypical
negotiation or dispute over an asset contemplates at least two par-
ties to a transfer, although there could well be more. But no matter
the absolute number of claimants, there will be at least two classes
of claimants to the asset, one of which will hold the entitlement in
a given instance and one of which will not. Calabresi and Melamed
recognized that as between the two classes of claimants, entitlements
may be reciprocal.
A given entitlement can be assigned to either of the classes of claim-
ants. An exclusive entitlement, a property right, could be vested in
either of the claimants to an asset – in the case of judicial remedies,
issuing an injunction effectively allows the asset owner to exclude
others from the asset, while denying the injunction effectively allows
the user to take control of the asset. Similarly, a liability rule, a right
to be paid, could be vested in either claimant. The asset user might be
allowed to take the asset in return for payment to the asset owner, or
the asset owner might be allowed to reclaim the asset upon payment
to the user for the value of the asset. This reciprocity produces a set of
four possible rules, allocating the rights in the asset either exclusively
to one party or the other, or under a liability regime to one party or
the other.
But the four reciprocal possibilities of the Calabresi/Melamed schema
do not define the entire universe of rights assignments. Commentators
relatively quickly realized that the incentive structure of liability rules
is equivalent to that of a “call” option in futures markets.10 In the lan-
guage of options contracts, a call is the right to purchase an asset at a
pre-defined price. The contractual price set for the transfer is known as
the exercise price. Liability rules, like call options, obligate the owner
of the asset to a transfer of all or part of the rights in an asset for a pre-
determined price. At the time the transfer is required, neither the price
nor the transfer may necessarily be desired by the asset owner, but the
transfer is imposed anyway. In the case of bargained-for options, the
transfer occurs due to an earlier agreement; in the case of liability rules,

╇ Morris, M., ‘The Structure of Entitlements’, 78 Cornell Law Review, 1993, 440;
10

Krier,€ J. and Schawb, S., ‘Property Rules and Liability Rules: The Cathedral in
Another Light’, 70 NYU Law Review, 1995, 440.
 Critical analysis: property and liability rules 299

the transfer may occur due to an agreement or due to the operation of

other law, such as a statute.
Liability regimes are of particular use in situations of bilateral
mo�nopoly, that is, where the parties can only deal with one another. In
the presence of property rules, such situations are expected to produce
“holdout” problems, where each party acts strategically to capture all or
most of the value of an exchange. Because of the exclusive nature of the
property regime, the rights holder can prevent any beneficial use of an
asset except on his terms, but the other party may refuse those terms.
This may result in a bargaining impasse, where no exchange occurs.
The impasse may be especially acute where the valuations of the par-
ties create a large bargaining range, making agreement on a price for
exchange prohibitively difficult. The asset goes inefficiently unused as
a result.
Liability rules break the impasse by allowing one of the parties to
take the asset without the permission of the other party. But of course
such a taking will occur only if the party taking the asset is willing to
pay the royalty set for the asset. Analyzed under option theory, we may
say that the option holder will only exercise the option when his private
valuation is higher than the strike price. On average, this is expected to
produce efficient returns.11 Importantly, this occurs because the liabil-
ity structure harnesses the parties’ private information about valuation.
It may be difficult to get parties who are behaving strategically to reveal
their private valuations, but they can be prompted to act on those valu-
ations under a liability system.
The recognition that liability rules operate as call options raises the
possibility that another type of option, the put option, may also be pres�
ent in the cathedral of asset allocations.12 A “put” is the right to sell an
asset at a pre-defined price. Each type of option contemplates an asset
transfer, the terms of which were agreed upon and memorialized in
the contract at some previous time. The party subject to the call or the
put may no longer necessarily desire the transaction, or may no longer
desire the transaction at the exercise price, but is contractually obli-
gated to the transfer anyway. Thus, call options effectively confer the
right to force a sale to the option holder; put options effectively confer
the right to force a purchase from the option holder.
As I have suggested above, liability rules or call options are well
known in the law of real property and chattels, in the form of easements,

11
╇ Kaplow, L. and Shavell, S., ‘Property Rules Versus Liability Rules: An Economic
Analysis’, 109 Harvard Law Review, 1996, 713.
12
╇ Ayres, I. ‘Protecting Property with Puts’, 32 Valparaiso University Law Review, 1998, 793.
300 Dan L. Burk

claims of nuisance, and so on. Put options are somewhat more rare in
the law, but allocations of rights with the features of a put do occur.
Ayres has identified a number of situation in which judicial remedies
provide for put-type property allocations.13 Typically these involve an
election of remedies by the asset owner, either to recover taken prop-
erty or to be paid the value of the asset. These remedies parallel put
options in that the asset owner, rather than the taker, has the election
whether to be paid for the taken asset – in effect, to force a sale of the
asset whether or not the taker would prefer that outcome to returning
the asset. The striking feature of such put options is that they not only
create a divided entitlement that will harness the private information
of the parties, as a call option would do, but they provide the entitle-
ment holder with more than the value of the asset. The holder of the
put is entitled to the value of the asset plus the value of the put, which
has an independent worth.
The independent value of the put derives from value of flexibility
under future uncertainty. A critical feature of both types of options
is the allocation of choice. The choice as to whether the transfer will
occur lies with the option holder. Thus options will have a two-stage
allocative and temporal structure. In the first stage, the option holder
is given, or decides whether to acquire the option. In the second, later
stage, the option holder decides whether to exercise the option. The
second-stage, future choice to give up an asset and require payment for
an asset, or to take an asset and pay for it at the exercise price, has pre-
sent value, quite literally the value of keeping one’s options open until
the future situation becomes more certain.

19.4 Options in IP law

I have argued that if one is to make analogies between IP and tan-
gible property, then the full range of allocative systems in tangible
property ought to be part of such an analogy, not the idealized view of
exclusivity that some commentators would selectively import into the
consideration of IP. Options analysis has become well established in
the law of real property and chattels, and so by my argument deserves
consideration in regard to IP as well. Do such options exist in the law
of IP? In particular, given the theme of this volume, do they exist in
patents and related systems of proprietary rights? And if they do not,
should they?

╇ Ayres, ‘Protecting Property’, 800.

13
 Critical analysis: property and liability rules 301

The first place to look for options, particularly call options, in IP, is
where there are functioning liability rules, as we have seen that liabil-
ity rules function like call options. Liability rules in IP are most often
associated with copyright: for example with the compulsory licensing
schemes for music, or with user privileges and exceptions like fair use,
that are essentially a compulsory license at a zero royalty.14
But in the US, patents are largely devoid of formal liability rules.
Compulsory licenses in the US statute itself are quite rare, limited to
a handful of provisions governing civilian nuclear technology, certain
particulate emissions technologies, or medical procedures.15 In other
countries, compulsory licensing for many types of patentable subject
matter were fairly common, but such liability systems have been limited
by the requirements of the WTO TRIPs Agreement. Prior user rights,
which are available in many countries but are limited in the US, are also
effectively a type of compulsory license at a zero royalty.
But the fact that liability rules act as “call” options does not mean
that all call options are liability rules. Carroll has noted that the patent
system effectively includes call-type options in the maintenance fees
required to keep a patent in force. Patents lapse without payment of
these fees.16 Patent holders have in essence an option to buy the next
increment of patent protection, at a set price, by paying the fee.
Call options on patents can also be created by courts. In the US,
liability regimes are occasionally created as judge-made law, in the
context of remedies to infringement suits. Courts have in a very few
instances denied injunctive relief to patent holders in favor of monetary
damages, effectively creating a compulsory license for that patent, at a
royalty determined by the court.17 Such cases have typically involved
patents drawn to essential technologies – such as municipal sewage
treatment – that would precipitate a public health crisis if enjoined.
Preliminary injunctive relief requires such consideration of the pub-
lic interest, and the Supreme Court has recently re-emphasized that
permanent injunctions are subject to equitable considerations.18 So the
door remains open for purely monetary remedies, but denying a patent
holder the right to exclude will likely remain unusual.
In addition, Hausman et al. have employed the methodology of
options analysis in critiquing the effects of certain patent infringement

14
╇ 17 USC §§ 107, 110, 115. 15
╇ 35 USC §§ 287, 2183; 42 USC § 7608.
16
╇ Carroll, M., ‘One for All: The Problem of Uniformity Cost in Intellectual Property
Law’, Villanova Law/Public Policy Research Paper No. 2005–17, October 11, 2005,
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=820308
17
╇ City of Milwaukee v. Activated Sludge, 69 F.2d 577 (7th Cir. 1934).
18
╇ eBay, Inc. v. MercExchange, L.L.C., 126 S. Ct. 733 (2005).
302 Dan L. Burk

decisions by the US Court of Appeals for the Federal Circuit regard-

ing lot profit damages.19 In recent cases, the Federal Circuit has held
that if a non-infringing technology was hypothetically available to an
accused infringer, then lost profit damages are unavailable to the patent
holder, because the infringer could have substituted the non-infringing
technology, sold the same output, and reaped the same profits. This
holding effectively confers on the alleged infringer an option on patent
damages in situations where a substitute to the patented technology
was hypothetically available. If the alleged infringer chooses to use
the patented technology, and the patent is held valid or uninfringed
in an enforcement action, then the alleged infringer pays nothing. If
the patent is found to be valid and infringed, the infringing company
can switch to a non-infringing technology and pay damages equal to a
reasonable royalty, essentially what the infringer would have paid for a
license€initially.
This approach to patent damages shows how the decision whether to
infringe or not can be modelled in the familiar two-stage option. The
alleged infringer initially decides in the first stage whether to use the
patented technology; if a lawsuit ensues and the patent is held valid,
then the accused infringer can switch to the substitute technology
and pay a reasonable royalty. This means the accused infringer can
effectively defer the costs of adopting the substitute technology until
after the patent validity has been litigated – after uncertainties have
been resolved. The option to wait and decide whether to adopt the
substitute technology after uncertainties are resolved has value that
accrues to the infringer since the cost of acquiring the option is no
more than the infringer would have paid for a license to the patented
technology€anyway.
Despite the movement toward analysis of call options in patent law,
virtually nothing has been said to date about put options in patent law.
If call options are rare in the patent system, put options are even rarer –
although this should come as no surprise, given that they are relatively
rare in the law of real property and chattels as well. But the US patent
system does include at least one put mechanism, in the form of the
Statutory Invention Registration (SIR), which allows inventors to pub-
lish enabling descriptions of an invention without receiving a patent,
placing the invention into the public domain.20 This is effectively a put

19
╇ Hausman, J., et. al. ‘Patent Damages and Real Options: How Judicial Characterization
of Non-Infringing Alternatives Reduces Incentives to Innovate’, 22 Berkeley Technology
Law Journal, 2007, 825.
20
╇ 35 USC § 157.
 Critical analysis: property and liability rules 303

at an exercise price of zero – the holder of the technology can essentially

require the public to take the invention, electing not to hold it as a trade
secret or pursue a patent.

19.5 Contracting into options

Although recognizable liability rules may be sparse in the law of IP,
the kind of analyses performed by Carroll and by Hausman et al. dem-
onstrates how options theory may be useful in assessing legal incen-
tives to innovation. The liability systems considered here require us
to go a step further, as they contemplate arrangements beyond exist-
ing statutes or judicial remedies. Both the ITPRGFA as described
by Henson-Appollonio and the “semi-commons” pooling arrange-
ment proposed by Rai et al. may be viewed as attempts to set up an
exchange, in the institutional sense of that word. We are familiar with
other more obvious exchange institutions; with securities exchanges
directed toward the trading of stocks and other financial instruments;
or with commodities exchanges, directed toward the trading of food-
stuffs or raw materials. Such exchanges set the rules and parameters
for trade between parties that ostensibly wish to exchange real or
financial assets.
But it is critical to understand that such institutions are in fact con-
tract exchanges, where the primary goods traded are promises to deliver
certain properties at a certain price. Such promises may be current,
intended for immediate execution, or they may be options intended for
execution at some later date. It is not in fact securities or commod-
ities that change hands in such exchanges; they are the basis for the
promises, but it is the exchange of promises that is the point of the
institution. Moreover, the exchange of contracts is subject to contract;
�traders in a given exchange contractually agree to certain rules govern-
ing buying and selling within the exchange. These contracts structure
the transaction environment; in effect they lower the transaction costs
for trading, and create a contractually defined marketplace.
The ITPRGFA and small-molecule proposal contemplate the same
arrangement: defining a marketplace according to certain contractually
agreed upon rules, in order to lower the transaction costs for trades.
This is especially striking in the case of the Rai et al. proposal: it is
not merely information about biological and chemical molecules that is
exchanged within their contractual marketplace, it is a set of promises,
as to what may be done, what price will be paid and under what condi-
tions, that is exchanged within their pooling arrangement. The stan�
dardized exchange structure is necessary due to the high transaction
304 Dan L. Burk

costs first, of bargaining under uncertainty regarding the receptor/�

ligand combinations tested; and second, strategic behaviours of the
parties who hold physical title to the molecular pairs.
Additionally, the agreements within the shelter of the exchange
structure are drafted under uncertainty, contemplating different out-
comes depending on the results of testing. Uncertainty dictates the
contingent nature of such promises; the parties may or may not exer-
cise their contractual options depending on the outcome of test results
that cannot be known at the time the contract is drafted. We have
seen that options are desirable to harness the private information of
parties to a bargain. The proposal of Rai et al. facilitates information
exchange in the physical sense that certain molecules will be found
to react optimally with certain targets. But this is intertwined with
information forcing regarding the parties’ valuation of the asset, or
their willingness to pay for the asset. Private valuation is of course pro-
foundly affected by information about the asset, in this case chemical
and physiological information that is privately held by each of the par-
ties and unavailable to the other.
Call options are well suited to such bargaining under future uncer-
tainty, but we have seen that they are not the only tool available to
facilitate innovative exchange where the parties stand in bilateral mon-
opoly, and bilateral monopolies characterize the small molecule market
place€– one party holds materials, and information about materials, that
will physically interact with materials held by the other. The possibil-
ity of adding put options to the suite of property entitlements in this
situation is particularly interesting for the Rai et€ al. pharmaceutical
research proposal. Ayres has noted that under ex€ante conditions, put
options can increase a rights holder’s expected payoff from bargaining
above that which would be expected under a pure property regime,
without reducing what the other party to the bargain would expect.21
That is to say, when assessing the parties’ expected payoff before they
acquire information about the value of the resource they hold, puts can
raise the level of payoff a party expects from an exchange.
This means that put options may be an attractive mechanism to
employ where it is desirable to encourage investment in the resource
held by the rights holder. If at the time of investing, the holder of a put
option does not know her expected value, she does know that the put
will have at least the value of the property. And, because the put gives
the holder the entitlement plus the value of the put, the holder should
be willing to invest up to the level of the larger expected payoff. Given

╇ Ayres, ‘Protecting Property’, 805.

21
 Critical analysis: property and liability rules 305

that the problem Rai et al. address is precisely a problem about ex ante
investment, about deciding what to invest before the value of a small
molecule compound is known, puts may be appropriate to consider.

19.6 Conclusion
I have argued that the liability systems found in the ITPRGFA and the
pharmaceutical testing proposal of Rai et al. can be viewed as establish-
ing essentially a type of commodities exchange, which in turn suggests
that these systems may be fruitfully analyzed by application of option
analysis. The chapters to which this comment is directed contemplate
liability regimes for IP exchange, but the place of liability rules in the
cathedral of asset entitlements can only be understood by reference
to the place of other regimes in the cathedral. Option analysis pro-
vides an excellent window through which to view these relationships.
While there has been to date relatively little application of option anal�
ysis to IP, the sizeable body of literature applying option analysis to
real property suggests the range of entitlement allocations that might
be �contemplated. In the present context, option analysis clarifies the
structure of the liability regimes discussed in the previous chapters,
and suggests additional arrangements, such as “put” rules, that might
be worth€exploring.
I have directed my comments to discussion of the ITPRGFA and
the pharmaceutical development proposal, but of course a similar view
could be taken of virtually all the species of “clearinghouse” mecha-
nisms reviewed in this volume. Virtually all of them attempt to create
exchange environments via contractual structures aimed at lowering
transaction costs. Previous commentary on patent pools, performance
societies and the other mechanisms in this volume have suggested that
if property rights are granted, clearinghouse mechanisms through a
process of “contracting into liability rules”.22 Yet the transaction costs
of such contracts may be substantial, deterring such exchanges from
forming. Transactions costs of contracting can be significantly low-
ered by the availability of standardized contracts, which is in essence
what institutional exchanges provide.23 Such a “nexus of contracts” has
been identified as providing a lower cost transaction �environment than

22
╇ Merges, R., ‘Contracting Into Liability Rules: Intellectual Property Rights and
Collective Rights Organizations,’ 84 California Law Review, 1996, 1293.
23
╇ Hillman, R. and Rachlinsky, J., ‘Standard-Form Contracting in the Electronic Age’,
77 NYU Law Review, 2002, 429.
306 Dan L. Burk

open market transactions.24 Once established, the rules of institutional

exchanges may in essence allow asset owners to “contract into contract-
ing into liability rules”. And once within the shelter of an institutional
structure, the diversity of possible rights allocations provides a rich
diversity of option structures to prompt investment and€exchange.

R eferences
Ayres, I. ‘Protecting Property with Puts’, 32 Valparaiso University Law
Review, 1998, 793.
Burk, D., ‘Muddy Rules for Cyberspace’, 21 Cardozo Law Review, 1999, 121.
Burk, D., ‘Legal Consequences of the Cyberspatial Metaphor’, in Consalvo,
M., et al. (eds.) Internet Research Annual Volume 1: Selected Papers From
the Association of Internet Researchers Conferences 2000–2002, New York,
Peter Lang.
Burk, D. and McDonnell, B., ‘The Goldilocks Hypothesis: Balancing
Intellectual Property Rights at the Boundary of the Firm’, 2006
University of Illinois Law Review, 2006, 275.
Calabresi, G. and Melamed, A.â•›D., ‘Property Rules, Liability Rules, and
Inalienability: One View of the Cathedral’, 85 Harvard Law Review,
1972, 1089.
Carroll, M., ‘One for All: The Problem of Uniformity Cost in Intellectual
Property Law’, Villanova Law/Public Policy Research Paper
No.€2005–17, October 11, 2005, http://papers.ssrn.com/sol3/papers.
cfm?abstract_id=820308
Hauseman, J. et. al., ‘Patent Damages and Real Options: How Judicial
Characterization of Non-Infringing Alternatives Reduces Incentives to
Innovate’, 22 Berkeley Technology Law Journal, 2007, 825.
Henson-Apollonio, V., ‘Case 10. The International Treaty on Plant Genetic
Resources for Food and Agriculture: the Standard Material Transfer
Agreement as implementation of a limited compensatory liability regime’,
Chapter 18 of this volume
Hillman, R. and Rachlinsky, J., ‘Standard-Form Contracting in the
Electronic Age’, 77 NYU Law Review, 2002, 429.
Johnston, J.â•›S., ‘Bargaining Under Rules Versus Standards’, 11 Journal of
Law, Economics and Organizations, 1995, 256.
Kaplow, L. and Shavell, S., ‘Property Rules Versus Liability Rules: An
Economic Analysis’, 109 Harvard Law Review, 1996, 713.
Krier, J. and Schawb, S., ‘Property Rules and Liability Rules: The Cathedral
in Another Light’, 70 NYU Law Review, 1995, 440.
Merges, R., ‘Contracting Into Liability Rules: Intellectual Property Rights
and Collective Rights Organizations’, 84 California Law Review, 1996,
1293.

╇ Burk, D. and McDonnell, B., ‘The Goldilocks Hypothesis: Balancing Intellectual
24

Property Rights at the Boundary of the Firm’, 2006 University of Illinois Law Review,
2006, 275.
 Critical analysis: property and liability rules 307

Morris, M., ‘The Structure of Entitlements’, 78 Cornell Law Review, 1993,

440.
Rai, A.â•›K ., Reichman, J.â•›H., Uhlir, P.â•›F. and Crossman, C., ‘Pathways across
the valley of death: novel intellectual property strategies for accelerated
drug discovery’, Chapter 17 of this volume
Rose, C., ‘The Shadow of the Cathedral’, 106 Yale Law Review, 1997, 2175.
â•… ‘Crystals and Mud in Property Law’, 40 Stanford Law Review, 1988,€577
Part V

Different perspectives
20 Gene patents: from discovery to invention
A geneticist’s view

Gert Matthijs and Gert-Jan B. Van Ommen

20.1 Introduction
At the start of the 1990s, gene patents were already well engrained in the
field of biochemistry and cell biology. Typically, they were targeted at
specific, well-described and credible applications, ranging from recep-
tor proteins useful for drug entry to sweetening proteins to replace sugar.
The advent of gene cloning per se, in the preceding two decades, had
not made an impact as a dramatic departure from existing patent prac-
tice. The major onslaught of large-scale, high-�throughput automated
sequencing, however, precipitated an intense debate on �intellectual
property (IP) issues, associated with the identification of our genetic
heritage. As early as 1991, HUGO organised an expert workshop on
this topic in Munich. This led to a first ‘HUGO position statement
on cDNA patents’ (1992),1 noting that patenting DNA Â�segments of
unknown function was unjustified as these were mere �discoveries, and
that this practice would stifle upstream research. It was proposed to
restrict patents to genes or other DNA elements of which the function
was elucidated.
The issue of gene patents materialised in earnest in the genome
community in 1992, when J. Craig Venter, then employed by the US
National Institute of Health (NIH), after internal NIH consideration
and stimulated by its director Bernadine Healey, submitted patent
applications for 2,000 so-called ESTs (expressed sequence tags, short
randomly cloned cDNA segments), on the basis that if they would not
be protected this might cause missed future commercialisation pos-
sibilities. The scientific community reacted with profound and wide-
spread dismay. The patenting of snippets of protein-coding DNA,
based on their putative function as coding for segments of the myriad
proteins of the human body, but with as yet undisclosed, hypothetical
functionality, was widely condemned as heralding an IP blockade of
1
╇ HUGO position statement on cDNA patents (1992) (see www.hugo-international.
org/PDFs/Position Statement on cDNAs Patents 1992.pdf.)

311
312 Gert Matthijs and Gert-Jan Van Ommen

unprecedented scope which would severely hamper free exchange of

pre-competitive knowledge. These events, as well as the major industrial
involvement, caused the issue to be revisited at HUGO’s ‘International
Genome Summit’, held in January 1994 in Houston. This summit
brought together for the first time representatives of funding agencies
and governments of most countries sponsoring genome research, with
key specialists in the molecular, technical, clinical, ethical and legal
fields. This ultimately resulted in the ‘HUGO Statement on Patenting
of DNA sequences’, released in April 1995 in HUGO’s regular publi-
cation ‘Genome Digest’.2 The statement argued, amongst other points,
that sequence data should be immediately and publicly disseminated
without restrictions on its use, and that future patent rules, rather than
rewarding routine discoveries, should provide protection for the much
more intellectually challenging work of determining biological function
and application of the gene sequences.
The NIH patent applications were eventually not maintained, but
meanwhile the next, much larger-scale endeavour of the same nature,
targeting 100,000 ESTs, had gotten under way, by the company Human
Genome Sciences (HGS), established by Venter, who had by then left
NIH and founded The Institute for Genome Research (TIGR), and
William Haseltine, who licensed the rights exclusively to a pharma
company SmithKline Beecham. This eventually led to about a hundred
patents, of a quite broad nature. In a densely packed room at the fall
1994 Genome Meeting in Washington, a consortium of academic insti-
tutions led by Washington University and funded by Merck&Co, argu-
ing that industries and academia were not in the business of collecting
patents on unclear genome segments, but in that of developing drugs,
announced a counter-move by pledging to rapidly generate 300,000
ESTs in one year and make them publicly available. By November 1995,
this single project alone had generated 200,000 of the 270,000 EST
sequences then present in the dbEST database3 at the National Centre
for BioInformatics (NCBI) in the US, mirrored at the European Centre
for BioInformatics (EBI) in the UK. This early treasure trove of pub-
licly available genomic coding data greatly stimulated positional cloning
and functional analysis worldwide, as witnessed by its attracting more
than 12,000 inloggers in one year. Its project-based nature, as well as
the joint public–private involvement stood model for the later human

╇ HUGO Statement on Patenting of DNA sequences (1995) (see www.hugo-international.

2

org/PDFs/Statement on Patenting of DNA Sequences 1997.pdf.)

╇ dbEST is a division of GenBank that contains sequence data and other information on
3

‘single-pass’ cDNA sequences or ‘Expressed Sequence Tags’, from a number of organ-

isms (see www.ncbi.nlm.nih.gov/dbEST/). Also see 4 Nature Genetics, 1993, 332–3.
 A geneticist’s view 313

genome project and the Single Nucleotide Polymorphism (SNP) and

Hapmap4 consortia. Indeed, it is ironic that, of all bodies, it was the
major US public research institution NIH which was at the root of the
early gene patenting furore, while, in contrast, it was an industry-led
group which sparked the first collective action to rapidly move hotly
debated IP matter into the public domain.
In these and subsequent statements, like that of July 1997, reiterating
viewpoints in the light of advancing insights, that of October 2000, com-
menting on the EU Biotechnology Directive5 and that of 2003 on the
altering field in relation to the extensive generation of large-scale gen-
omics data, HUGO has continued to seek a balance between advance-
ment of health research and protection by IP. Basically, from early 1992
onwards, it has envisaged the course from discovery to invention as a
stepwise process of gradually added inventive contributions, starting
with the discovery of anonymous DNA sequences without attributed
function, and crossing the trajectory via gene fragments, entire genes
with unknown function, to sequences with known function, including
genes, control elements and mutations in disease, to end with diag-
nostic tests and ultimately, therapies. Unlike for the development of
therapy, where few will challenge the importance of IP protection, the
role and format of IP protection for diagnostic tests in genetics is still
contentious and intensively debated even today.

20.2 From publish or perish to publish and perish: the

European dilemma
There are significant differences between the patenting systems in the
world. When concentrating on the aspects directly impinging on the
scientific process, by far the most important difference is the presence
or absence of a so-called ‘grace period’. This is a given amount of time
during which publication of scientific results by scientist-�inventors
does not damage the novelty of their own invention. The US and
many other countries have a one-year grace period in which authors

4
╇ The goal of the International HapMap Project is to develop a haplotype map of the
human genome, the HapMap, which will describe the common patterns of human
DNA sequence variation. The HapMap is expected to be a key resource for research-
ers to use to find genes affecting health, disease, and responses to drugs and environ-
mental factors. The information produced by the Project will be made freely available.
The Project is a collaboration among scientists in Japan, the UK, Canada, China,
Nigeria, and the US (see www.hapmap.org.).
5
╇ HUGO statement on patenting of DNA sequences, in particular in response to the
European Biotechnology Directive (2000) (see www.hugo-international.org/PDFs/
Statement on Patenting of DNA Sequences 2000.pdf).
314 Gert Matthijs and Gert-Jan Van Ommen

of scientific papers, or their university’s valorisation institutions, can

still seek patent protection for competitively published findings, while
Japan and a few other countries have a half-year grace period. In con-
trast, in the European patenting system there is no such grace period.
Any data made public prior to patent filing are fully novelty-damaging,
also to the inventors themselves. While in industrial circles in Europe
this arrangement has quite strong support, as it essentially forces their
research scientists to be very reticent and keen on taking out patents;
this comes at the price of greatly widening the gap between industrial
and academic research. Even while today there is much more attention
for protection of commercially viable ideas, the measure of research
is still the publication and citation in high-impact journals. This is
what generates scientists the best chances to get their grants funded or
renewed and the most attractive jobs. Thus, the scientists in Europe are
at a fundamental disadvantage relative to their US colleagues. While the
latter can place maximal efforts on making rapid progress and publish
as fast as possible in the best possible journal, their European competi-
tors have either to give up on IP protection and go for the gold as well,
or enter a parallel procedure in their institutions, or with industrial
parties, to negotiate for the necessary agreements, funds and patent
attorney support. Consequently, in the European academic world the
patenting process has long had the ring of complexity and is hard to
reconcile with competitive frontline research. Even while today major
European academic institutions are beginning to be well-versed in deal-
ing with this, it is far from widely resolved as a conception of the past.
In our view, as long as this inequality is not fundamentally resolved
the process of IP protection will continue to be perceived by the aver-
age scientist in European academic institutions as cumbersome, and a
necessary but annoying evil at best. Aside from the direct effects on sci-
entific research, this attitude also hampers the easy transfer of top sci-
entists between academia and industry as it creates a big perceptional
difference to which people have to ‘readjust’. Thus, European industry
would be much better served by adopting a grace period like most other
countries, thus removing this perception gap and creating a much more
level playing field, both scientifically and in the innovation arena.

20.3 Discovery or invention: monogenic vs.

multifactorial€genes
The discussion about the role of IP protection, and its importance or
suitability, has gained impact by the recent breakthroughs of ‘Genome-
Wide Association Studies’ (GWAS), driven by the high-throughput
 A geneticist’s view 315

SNP studies and the ‘next-generation’ sequencing possibilities. In the

days of the discovery of the major genes for monogenic disease, frequent
or rare, there was at least no doubt about the predictive value of the
disease-associated disease variants, and thus of the clinical benefit of
applying gene-based diagnosis. In contrast, the discovery of predictive
factors in multifactorial disease – besides a long time coming – is a slow
and gradual process. Often the first to appear are a variety of associ-
ations and failures to replicate, in both of which cases it is often not
clear, even after the fact, who is right, due to varying disease definitions
and – even in large cohorts – the luck of the draw. This may lead to find-
ing a confirmed risk (or protective) factor in a cohort which would only
have a 20% power to detect it, or, conversely, not finding it in a cohort
with an 80% detection power. This said, definitely 2007 has been the
year in which the GWAS got under way, and in which most of the earlier
scepticism about the feasibility of the approach has been€refuted.6
But in terms of drug development, this is only the start of the agony:
years of painstaking validation often will have to follow, reported in
papers which in all but the high-profile cases have a hard time to get
published and thus recognised in the public domain. This in turn,
is only the beginning of the elucidation of the biological pathways
involved. So€the risk taken with the investment in drug development at
the time of the initial risk/protective factor discovery is truly immense.
As a consequence, more and more voices are proclaiming that this
entire stage should be seen as a pre-competitive phase, in which the
joint parties have more to gain by access to each others ‘proprietary’
(but ill-defined) findings than by each one embarking on its own, at
best tame, goose chase.
What, in these cases, with patent applications? Clearly, many of the
currently studied disorders, like diabetes, obesity, heart or neurological
disease, cancer, or arthritis, are very frequent and amongst the severest
plagues of the worlds’ gluttony regions today. So the reward of actu-
ally developing a working drug – even a reliable diagnostic or, better
yet, a good prognostic tool – would be enormous. Thus, in the field
of common disorders there may be a case for considering diagnostic
patents provided these are linked to better targeting therapy, so-called
‘theranostics’. On the other hand, we are still far away from ‘big mar-
kets’: the actual prognostic power of even the clearest of confirmed
diabetes discoveries today is still very modest. We are dealing with risk
increases of 1.1 to 1.3, i.e. people which have these risk factors are only

6
╇ See Van Ommen G.J.B., ‘Popper Revisited: GWAS Here, Last Year’, 16 Eur J Hum
Genet., 2008, 1–2 and references therein.
316 Gert Matthijs and Gert-Jan Van Ommen

at a 10–30% increased risk, while moving more and eating less would
reduce the risks several fold, for both the risk- and the non-risk groups.
‘No problem: safety in numbers’, may the market optimists say, con-
sidering that people having five or more of those risk factors do in fact
have far greater risks. The sceptics – often geneticists who know how
these calculations work – will then counter that finding these people –
the ones with high clinical benefit – comes at a price: multiplying risk
equally reduces the number of people at this risk. So, yes, we will find
high-risk people, but no more than 1–2% of all people likely to develop
these diseases.
The good news is that there is a big market for these tests – already
exploited on the Internet. The bad news is that nearly all tests now on
offer have only a tiny chance to correctly predict disease, and a much
greater chance that, in case of a borne-out positive prediction, the dis-
ease is not due to the factor in question, while for a negative prediction
the chance to still develop the disease is almost unchanged.7 Thus, the
term ‘hot air’ is not very far from these ‘early adopter’ products, and
this bubble will soon burst, when the public comes to realise this. At
the cost of its confidence in later, better products! So one should hope
that this part of the common disease risk factor market is not the focus
of serious investment by large enterprises.
More plausibly, and more sensibly, today’s discoveries will track the
path to new, unforeseen, biology, and lead to better, more mechanistic
understanding. This is a more rational way to get to sound therapeutic
and preventive innovations. Once again, however, we reiterate that in
this model the current discoveries are but tools for further research, so
it still remains doubtful what the utility is of IP protection in this very
upstream stage.

20.4 Diagnostic tests and patents

Diagnostic tests are used to detect pathogenic mutations in genes
responsible for inherited and acquired genetic disorders. The invention
of the Polymerase Chain Reaction (PCR), back in 1985, and the rapid
pace at which novel genetic defects have been identified since ‘poÂ�sitional
cloning’ came of age in the early 1990s, have greatly increased the pos-
sibilities for genetic diagnosis. Over the past two decades, the number
of diagnostic tests has steadily increased.

╇ Hunter D.J., Khoury M.J. and Drazen J.M., ‘Letting the Genome out of the Bottle –
7

Will We Get Our Wish?’, 358 N Engl J Med., 2008, 105–7; van Ommen and Cornel,
2008.
 A geneticist’s view 317

Patenting
Once a link between a disease and a genetic defect (mutation) has been
established, a diagnostic test can relatively easily be developed. Most
laboratories use a combination of different methods: from ‘home-brew’
detection methods and commercial kits, to high-throughput mutation
scanning platforms and direct sequencing.
Patents on diagnostic tests based on DNA sequences have been criti-
cised, both in the genetics community and by the public at large. The
inventions are usually based on the disclosure of a link between a muta-
tion and a disease. One serious problem with such diagnostic gene pat-
ents stems from the fact that it is impossible to ‘invent around’, i.e. to
invent an alternative test that would not require the gene sequence or
gene product. Thus, the patent holder effectively holds a monopoly over
testing for the specific disease.
Therefore, many geneticists support the view that the establishment
of an association between a monogenic disease and a specific (defect
in a) gene should not be patentable (see below 4.3). This would be nat-
urally achieved if everyone would accept that this is a discovery, not
an invention: discoveries are not patentable. In addition, individual
mutations in known disease genes should also not be patented. With
the current technology, there is arguably no inventive step and a lack
of novelty, which would exclude them from patenting under current
patent law.
Clearly this reasoning would become more ambiguous in the case of
associations between risk factor alleles and multifactorial disease. In
this case it can be argued that with the current state of the art their dis-
covery, as well as their validation still require significant inventiveness.
Indeed, one might argue here that in view of the many unreplicated
findings, the replication of such an identification is as essential as the
first finding, so only the two together would constitute an invention.
This is against current practice, but it would place the providers of
�replication cohorts in a better and fairer position.
In theory, only ‘product claims’ can assert rights over the DNA
sequences themselves, whereas ‘use claims’ covers the use of the
sequence. The Nuffield Council suggested in their report ‘The ethics of
patenting DNA’ (2002) that narrow use patents on specific diagnostic
tests might provide an effective means of rewarding the inventor while
providing an incentive to others to develop alternative tests.8 However,

8
╇ Nuffield Council on Bioethics, The Ethics of Patenting DNA, A Discussion Paper, 2002
(www.nuffieldbioethics.org).
318 Gert Matthijs and Gert-Jan Van Ommen

from a molecular genetic viewpoint, this is misleading: alternative tests

might involve different or novel technologies – which can indeed be
inventive and become a proprietary tool – but all these methods still
‘interrogate’ the same genetic sequence, i.e. they are only alternative
methods to obtaining genetic data.
This is easily illustrated on the basis of Myriad Genetics’ BRCA1
�patents. Patent EP 705902 essentially contained product claims, i.e.
it covered, among other things, the BRCA1 DNA and polypeptide
sequence, whereas patent EP 705903 originally claimed thirty-five
�individual (and mostly private) BRCA1 mutations. Patent EP 699754
contained a use claim on the diagnostic methods, i.e. it claimed ‘a
method for diagnosing a predisposition for breast and ovarian cancer in
human subject which comprises determining in a tissue sample of said
subject whether there is a germline alteration in the sequence of the
BRCA1 gene Â�coding for a BRCA1 polypeptideâ•›…â•›said alteration being
indicative of a predisposition to said cancer’.
In practice, the use claims in the latter patent are just as difficult to
work around as the product claims in the former. Actually, EP 699754
was even more critical for diagnostics than EP 705902. Luckily, these
patents have undergone modifications after the opposition and appeal
procedures at the European Patent Office (EPO). We use them here as
examples, to question the distinction that is often proposed in favour
of ‘purpose-bound’ patent protection. Also note that all the methods
that are described in the patent for the diagnostic use of the BRCA1
sequences, were established methods at the time of filing: the patent
does not describe a new or specific diagnostic kit, nor instructions to
built one; the patent describes the diagnostic method, i.e. the detec-
tion of a link between a genetic defect, in this case, mutations in the
BRCA1 gene and a disease, in this case, breast and/or ovarian cancer.
The easiest way to avoid blocking patents in genetic testing would
be to reorient patenting policy and only allow patents on diagnos-
tic methodology, limiting gene patents to the context of therapeutic
development. This will not disfavour investments in the diagnostic
field: companies and investors would still step into the diagnostic kit
market, because the kits would be competitive on a technological and
economical basis.

Licensing
The reality is, however, that many diagnostic gene patents have been
granted, and that differences in the licensing policies dichotomise the
field. Two examples illustrate how the attitude of the patent holders
 A geneticist’s view 319

greatly affects the availability of genetic testing for the patients, and
influences the development of comprehensive and affordable tests.

CFTR
The situation is not too bad in the case of the Cystic Fibrosis
Transmembrane Conductance Regulator (CFTR) gene, which is
mutated in patients with cystic fibrosis and which was discovered back
in 1989.9 The gene was patented by the Hospital for Sick Children of
Toronto and the University of Michigan. However, the patent holders
have granted free access to the gene sequence for diagnostic testing.
The diagnostic laboratories have taken advantage of this and were rap-
idly able to offer testing for cystic fibrosis, using commonly available
technologies for mutation analysis. In addition, the patent holders have
also offered licences to several companies that have developed kits for
the simplified identification of the most frequent mutations. This com-
bination has greatly promoted the availability of the CFTR tests, at a
reasonable cost. The difference between those kits solely resides in the
technology which lies at the basis of the kit and in their ease of use,
price etc. Several kits are available on the market, and as a result of the
competition, they have become ever more performing and ever more
accessible. Thus, while the patent holders collect royalties because most
of the laboratories are now using the commercial kits anyway, the kit
manufactures try to constantly improve the test. It is open for debate if
the CFTR patent itself has ‘promoted progress’ (which is the essential
and original aim of patenting) but at least it did not hamper the devel-
opments in the field of diagnostics. It seems that the genetic or medical
community has no major objections to this model.
What is not publicly known is how much of the cost of the kits actu-
ally represents royalty fees. It would be nice to find out, to get an idea
of the ‘value’ of a gene or mutation in IP terms.

BRCA
Almost all the drawbacks of gene patenting and licensing for patients
and practitioners, and even for kit manufacturers, are exemplified by
the breast cancer (BRCA) gene patents or Myriad case. Two major
genes in which germ line mutations cause a strong breast and/or ovar-
ian cancer susceptibility were identified in the early 1990s. The BRCA1
gene, which was localised by linkage analysis to chromosome 17 in 1990

9
╇ Kerem B., Rommens J.M., Buchanan J.A., Markiewicz D., et al., ‘Identification of the
Cystic Fibrosis Gene: Genetic Analysis’, 245 Science, 1989, 1073–80.
320 Gert Matthijs and Gert-Jan Van Ommen

by Mary-Claire King and co-workers,10 was cloned and sequenced four

years later by Myriad Genetics.11 The BRCA2 gene was first localised
to chromosome 13 in 199412 and partly sequenced shortly thereafter at
the Institute of Cancer Research in the UK.13 It was then further char-
acterised by Myriad Genetics.14
Several patents on BRCA1 and BRCA2 have been granted by the
US Patent and Trademark Office (USPTO) between 1997 and 2000.
In Europe, three patents on the BRCA1 gene were granted to Myriad
Genetics and co-inventors by the EPO in 2001. The first BRCA2
patent was granted to Myriad Genetics and co-inventors early in 2003,
the other BRCA2 patent, which had been filed earlier by the Cancer
Research Campaign (later renamed Cancer Research UK or CRUK),
was granted early in 2004.15
Soon after the genes were identified, laboratories worldwide started
to offer diagnostic testing for BRCA1 and BRCA2, using different
methods for mutation detection. Thus, the diagnostic test for BRCA1
and BRCA2 was already widely available in European laboratories
when the European patents were eventually granted in 2001. It was
Myriad’s policy not to license the test or at least not at conditions that
were acceptable to the laboratories.16 This meant that all the tests would
have to be performed in its own laboratories in Utah. The reaction has
been strong: several groups of European geneticists made use of the
possibility, under the European Patent Convention (EPC), for oppo�
sition and appeal against a patent, at the EPO. European health care
systems are largely publicly funded, and geneticists and cancer special-
ists in Europe were not willing to accept a monopoly on breast and

10
╇ Hall J.M, Lee M.K., Newman B., Morrow J.E., et al., ‘Linkage of Early-Onset
Familial Breast Cancer to Chromosome 17q21’, 250 Science, 1990, 1684–9.
11
╇ Miki Y., Swensen J., Shattuck-Eidens D., Futreal P.A., et al., ‘A Strong Candidate for
the Breast and Ovarian Cancer Susceptibility Gene BRCA1’, 266 Science,1994, 66–71;
Futreal P.A., Liu Q., Shattuck-Eidens D., Cochran C., et al., ‘BRCA1 Mutations in
Primary Breast and Ovarian Carcinomas’, 266 Science, 1994, 120–2.
12
╇ Wooster R., Neuhausen S.L., Mangion J., Quirk Y. et al., ‘Localization of a Breast
Cancer Susceptibility Gene, BRCA2, to Chromosome 13q12–13’, 265 Science, 1994,
2088–90.
13
╇������������������������������������������������������������������������������������������Wooster R., Bignell G., Lancaster J., Swift S. et al., ‘Identification of the breast can-
cer susceptibility gene BRCA2’, 378 Nature, 1995, 789–92.
14
╇ Tavtigian S.V., Simard J., Rommens J., Couch F., et al., ‘The Complete BRCA2 Gene
and Mutations in Chromosome 13q-Linked Kindreds’, 12 Nat Genet., 1996, 333–7.
15
╇ Matthijs G., ‘The European Opposition against the BRCA Gene Patents’, 5 Familial
Cancer, 2006, 95–102; Verbeure B., Matthijs G. & Van Overwalle G., ‘Analysing
DNA Patents in Relation With Diagnostic Genetic Testing’, 14 Eur J Hum Genet.,
2006, 26–33.
16
╇ Munktell P., ‘Compulsory Patent Licensing. Master thesis’, University of Lund,
Sweden, 2004.
 A geneticist’s view 321

ovarian cancer �testing. In the US, where the first patent was granted
in 1997, the patent holders succeeded in stopping all laboratories from
further testing. The reason is simple: the risk of a court case in the US
is enough to frighten infringers, and unlike under EPC, an adminis-
trative opposition procedure does not exist under US patent law. The
European laboratories chose to continue performing BRCA tests for
their patients, risking to be sued for infringement, based on the prin-
ciple that, yet aside from the high cost and limited scope of the test in
the US, having to defer genetic testing of their local population to a
commercial party in another country was seen as unacceptable.
Furthermore, manufacturers refrained from developing novel tests
for BRCA1 and BRCA2 mutations. It is difficult to put or get the infor-
mation on paper, but we know of several companies which develop tech-
nologies for mutation analysis but stay away from BRCA1 and BRCA2
because of these patents. They may change their mind now that the
patents on these genes do not cause a problem anymore, at least not in
Europe and for the time being. However, on a global scale the US pat-
ents and the exclusive licensing policy of the patentees may still present
an impediment. So, regrettably, more than ten years were lost for the
development of novel technologies applied to BRCA.
In general, the mechanisms of the market that normally set a fair
price on products and promote the availability of these products, do not
work properly in the case of genetic testing, simply because either there
is no way to ‘invent around’ and put similar products on the market, or
because the diagnostic laboratories lack the power (i.e. a patent port-
folio or a suitable substitute for the diagnostic test) to negotiate reason-
able conditions. In 2006, the Organisation for Economic Co-operation
and Development (OECD) has issued guidelines that prescribe that
licences should be non-exclusive and easily obtainable, both in prac-
tical and in financial terms.17 Because there is a lack of legislation on
licensing, one hopes that the OECD members states will at least adopt
these guidelines.
It is highly undesirable from a clinical standpoint that a monopoly
on a gene also risks to lead to a level of testing which is below state-
of-the-art. Because Myriad Genetics capitalised on (the monopoly on)
the BRCA1 and BRCA2 gene patents, it has quickly set up testing:
the company offers sequencing of both genes with a turn-around-time
that beats all the public laboratories. However, in DNA diagnostics, it
is good practice to also look for deletions and duplications in disease

╇ OECD, Guidelines for the licensing of genetic inventions, OECD Council, 2006. (www.
17

oecd.org/document/56/0,2340,en_2649_34537_34317658_1_1_1_1,00.html).
322 Gert Matthijs and Gert-Jan Van Ommen

genes. It is now known that the latter account for a significant propor-
tion of mutations in BRCA1 and BRCA2.18 Interestingly, these types
of mutations were only detected because different genetic laboratories
continued to test breast cancer patients for mutations, using a plethora
of different approaches.
The Nuffield Council has also raised the question whether it is in the
public interest that there is only one diagnostic test available for a par-
ticular disease.19 The monopoly not only inhibits further test develop-
ment, it may even jeopardise the quality and the continuity of testing;20
just imagine that the only laboratory in the world that offers the diag-
nostic test, decides to discontinue its service, it would take a while
before another laboratory could take over – if anyone would still want
or be capable to take over at that stage. Along the same line, the exclu-
sive practice of clinical diagnostics also worried the National Academy
of Sciences (NAS) which stated that
the performance of a gene-based clinical test in an academic setting often gen-
erates rich databases of newly detected genetic variations that can be corre-
lated with phenotypes of large and heterogeneous patient populations. Such
admixed medical practice and research provides important new information
about the mutational repertory of specific disease-linked genes, as well as the
phenotypic correlations that provide new insights into disease mechanisms and
identify potential new targets for therapeutic intervention.21

Another aspect that ruffled the scientists’ feathers is the fact that the
identification of the familial BRCA1 and BRCA2 genes was preceded,
in the early 1990s, by a large international collaborative effort. The
Breast Cancer Linkage Consortium (BCLC), founded in 1989, was so
successful that the location of the BRCA1 gene, once disclosed in 1990,
was very quickly narrowed down to a small region on chromosome€17.22
Eventually, the BCLC database held genetic data on over 700 breast

18
╇ Reviewed in Walsh T., Casadei S., Coats K.H., Swisher E., Stray S.M., Higgins J.,
Roach K.C., Mandell J., Lee M.K., Ciernikova S., Foretova L., Soucek P., King
M.C., ‘Spectrum of Mutations in BRCA1, BRCA2, CHEK2 and TP53 in Families at
High Risk of Breast Cancer’, 295 JAMA, 2006, 1379–88.
19
╇ Nuffield Council on Bioethics, The Ethics of Patenting DNA, A Discussion Paper, 2002.
20
╇ Cho M., Illangasekare S., Weaver M., Leonard D., Merz J., ‘Effects of patents and
licenses on the provision of clinical genetic testing services’, 5 J Mol Diagn, 2003, 3–8.
21
╇ NATIONAL ACADEMY OF SCIENCES (NAS), Reaping the Benefits of Genomic
and Proteomic Research: IP Rights, Innovation and Public Health, National Academies
Press, Washington DC, 2005 (www.nap.edu/catalog/11487.html).
22
╇ For an overview of the progress, see Easton D.F., Bishop D.T., Ford D. &
Crockford€G.P., ‘Genetic Linkage Analysis in Familial Breast and Ovarian Cancer:
Results From 214 Families. The Breast Cancer Linkage Consortium’, 52 Am J Hum
Genet., 1993, 678–701.
 A geneticist’s view 323

cancer families from Europe, Canada, and USA, while the number of
centres involved in the BCLC was nearly 100. Allowing patent protec-
tion to only one organisation tends to ignore and disregard in terms of
IP rights the contribution of all the other collaborators.23
All these factors have contributed to the widespread reaction in
Europe against the patents granted to Myriad.24
EPC allows a democratic control on patenting via an opposition pro-
cedure. Art. 100 EPC defines the ‘Grounds for opposition’. In prac-
tice, anyone who disagrees with the granting of a patent by the EPO
is allowed to call for such a procedure, within nine months after the
granting date. It is handled by the Opposition Division of the EPO in
Munich. Hence, in October 2001, a French association of research
institutes and hospitals, and a coalition of the Belgian, Dutch, British,
Danish and German genetic societies filed oppositions against the first
BRCA1 patent (EP 699754). For the opposition against the second
patent (EP 705903) in February 2002, the Belgian government joined
the latter group, while the Dutch government filed a separate oppo�
sition, as did Greenpeace and the Social Democrats of Switzerland.
For the opposition against the third patent (EP 705902) in August
2002, the original ‘Belgian–Dutch’ initiative was further extended,
and included molecular and clinical geneticists, oncologists and can-
cer researchers from Austria, Belgium, the Czech Republic, Denmark,
Finland, Germany, Greece, Italy, the Netherlands, Switzerland and
the United Kingdom. Two Dutch and Belgian patient organisations
have also joined the opposition. A comparable coalition filed an oppo�
sition to Myriad Genetics’ BRCA2 patent (EP 785216). The coali-
tion did not file an opposition against the other BRCA2 patent from
CRUK (EP 858467), mainly because the patent holder had expressed
the intention to grant free licences to the publicly funded laboratories
in Europe.25
In brief, after oral hearings at the EPO in 2004, the first patent
EP 699754 was revoked due to errors contained in the initially filed
sequence. The correct sequence of the BRCA1 gene was only sent to
the patent office in March 1995, whereas it had been made available
through Genbank in October 2004, concomitantly with the publication

23
╇ Cf. Baldwin, T., ‘Ethics and Patents for Genetic Diagnostic Tests’, in G. Van
Overwalle (ed.), Gene Patents and Public Health, Brussel, Bruylant, 2007, 45–59.
24
╇ Matthijs G. and Halley D., ‘European-Wide Opposition Against The Breast Cancer
Gene Patents’, 10 Eur. J. Hum. Gen., 2002, 783–4; Matthijs, 2006.
25
╇ See Matthijs, 2006 for more details. Also see the minutes of the opposition proceed-
ings are available for consultation in the Online Public File Inspection at http://ofi.
epoline.org/view/GetDossier.
324 Gert Matthijs and Gert-Jan Van Ommen

by Miki et al. in Science.26 Hence, this led to a later priority date for the
patent, which effectively ‘killed’ the inventive step.27 In 2005, the other
two BRCA1 patents were severely limited in their scope, largely on the
same basis.28 Myriad’s BRCA2 patent suffered from the fact that part of
the gene sequence had already been identified by the UK group before.
It was strongly amended, to a single use claim on the 6174delT mutation
in BRCA2, which is a frequent mutation in Ashkenazi Jewish patients.29
The term ‘Ashkenazi Jewish women’ had to be included in the claim,
because the mutation had already been described before, and the patent
holders’ only ‘invention’ had been to show that the mutation is frequent
in that population. The patent owners have filed an appeal against the
decisions of the EPO, so the story is not over yet. The patent holders lost
the appeal against the decision of the opposition division on EP 705902,
the other hearings are scheduled to take place in November 2008.
It is of note that none of the arguments listed above (the opinion that
a disclosure of a link between a gene and a disease is little more than a
discovery, the fact that the test was improved by others, the observation
that the granting of the patent rewarded only one of the participants in
the race for the BRCA genes etc.) were not admitted during the proce�
dure at EPO. Also, the EPO has not questioned the patentability of the
BRCA1 or BRCA2 genes per se.

Beyond BRCA: the recommendations of the European Society of

Human Genetics
Some critical observers have emphasised that the Myriad case has been
an exception. Unfortunately this seems not to be true: many more genes

26
╇ Miki et al, 1994.
27
╇ Abbott, A., ‘Clinicians Win Fight to Overturn Patent for Breast-Cancer Gene’, 429
Nature, 2004, (6990):329. Also see EUROPEAN PATENT OFFICE, ‘Myriad/Breast
Cancer Patent Revoked After Public Hearing’. Press release, 18 May 2004 (www.epo.
org/about-us/press/releases/archive/2004/18052004.html).
28
╇ Abbott, A., ‘Europe Pares Down Double Patents on Breast-Cancer Gene’, 433 Nature,
2005, (7024):344. Also see EUROPEAN PATENT OFFICE, ‘Patent on Breast and
Ovarian Cancer Susceptibility Gene Amended After Public Hearing’. Press Release,
21 January 2005 (www.epo.org/about-us/press/releases/archive/2005/21012005.html);
EUROPEAN PATENT OFFICE, ‘European patent on mutations in breast and ovar-
ian cancer susceptibility gene amended after public hearing’. Press release, 25 January
2005 (www.epo.org/about-us/press/releases/archive/2005/25012005.html).
29
╇ Abbott, A., ‘Genetic patent singles out Jewish women’, 436 Nature, 2005, 12. Also
see EUROPEAN PATENT OFFICE, ‘Patent on “Breast Cancer Gene 2” Patent
Maintained in Amended Form After Public Hearing’. Press release, 29 June 2005
(www.epo.org/about-us/press/releases/archive/2005/29062005.html); Marshall E.,
‘European Patents. BRCA2 Claim Faces New Challenge’, 308, Science, 2005, 1851.
 A geneticist’s view 325

are covered by patents30 and several articles have suggested that patents
block research and development, as well as hinder patients’ access to
recently available diagnostic tests. A survey by Cho et al. found that
patents and licences have had a significant negative effect on the abil-
ity of clinical laboratories to develop and provide genetic tests.31 An
increasing number of gene patents have been exclusively licensed to
one or a few diagnostic companies, mainly in the US. These claims
have also reached Europe: recently, several laboratories have received
requests for paying licence fees on e.g. the familial Mediterranean fever
(FMF) gene; given the frequency of the disease in the Mediterranean
countries, this is an important diagnostic gene.
In 2005, the President and Board of the European Society of Human
Genetics (ESHG) have asked the Public and Professional Policy
Committee (PPPC) and Patenting and Licensing Committee (PLC) of
the ESHG to create a working party and discuss the different problems
with experts and stakeholders. The group explicitly aimed to ‘go beyond
the Myriad case’, but with a specific focus on diagnostics. It is imporÂ�
tant to achieve a situation where useful tests are available at afford-
able costs. The working group has recently presented a background
document to the Board and Membership of the ESHG.32 This back-
ground document reviews the current status on patenting and licensing
in genetic testing. It deals with different issues of patenting: it points to
problems and remedies within the patenting system. It also deals with
licensing: it explores novel models that could ease access to patented
genetic inventions, like patent pools and clearinghouses, and supports
the OECD guidelines. The group has drafted ‘Recommendations on
Patenting and Licensing in Genetic Testing’ which were accepted by
the ESHG board after a period of membership consultation and were
published in April 2008.33
The ESHG’s considerations and recommendations can be summa-
rised as follows.
There are some problems with regard to patentability:
• The major problems seem to be in the breadth of the claims in genetic
patents, in the criteria for patentability and in the number of (over-
lapping) patents.

30
╇ See e.g. Verbeure et al., 2006. 31
╇ Cho et al., 2003.
32
╇ ESHG, ‘Patenting and Licensing in Genetic Testing. Recommendations of the
European Society of Human Genetics’, Part 2. Background document. S. Aymé,
G.€Matthijs and S. Soini, 16 Eur J Hum Genet, 2008, S10 – S50.
33
╇ ESHG, ‘Patenting and Licensing in Genetic Testing. Recommendations of the
European Society of Human Genetics’, 16 Eur J Hum Genet, 2008, 405–411.
326 Gert Matthijs and Gert-Jan Van Ommen

• There is a need to improve the quality of the patents that will even-
tually be granted.
• The research exemption (permission for unlicensed research use) is
unclear: it is differently phrased in different countries and not uni-
versal throughout Europe.
The problems reported with regard to licensing are:
• Licences are problematic when they are exclusive.
• In general, licensing seems to be prohibitive, both in practical and in
financial terms, partly due to the complexity of the system, and to the
lack of effective guidelines. It is clear that the mechanisms of the mar-
ket do not – or cannot – work properly in the case of genetic testing.
• Most importantly, the licence agreements should not provide the
licensor with exclusive control over human genetic information.
Proposed solutions with regard to patentability are:
• The patenting of individual mutations in known disease genes should
be disallowed on the basis of an absence of novelty.
• The establishment of a link between a disease and a genetic sequence
or defect should be considered merely a discovery and therefore not
patentable, unless the identification of this link includes a real con-
ceptual innovation.
• The EPO should consider establishing an ethics committee or advis-
ory body to review issues of major interest, such as patents applied to
genes.
As to licensing, it is recommended that:
• Policy makers should work on the development of licensing guide-
lines, and effectively support those that have already been issued by
international organisations such as the OECD.
• Licences should be non-exclusive and easily obtainable, and the
licensing terms should be public, which would allow the costs of
licensing in the price of the final product to be known.

20.5 Novel models

Clearly the field is in flux, and further debate will be ongoing. It is
quite possible that the limited profitability of the patents in the diag-
nostic field of (relatively) rare, monogenic diseases eventually leads to
a lack of interest of industry and academia to establish and/or maintain
diagnostic gene patents. The current development of high-throughput
genomics technology will further reduce the inventiveness of finding
 A geneticist’s view 327

sequence variants causally connected to disease. On the other hand, the

development of multi-component so-called ‘biomarker’-diagnostics for
common complex disease, rather based on association than causality,
is on the rise. Sometimes these consist of several hundreds of elements
compiled on a gene-chip or as a proteomics or metabolite profile. This
presents a risk – if not a certainty – of many overlapping and/or comple-
mentary patents, or patent thickets.34 One could envisage solving this
with a clearinghouse exploitation model as in the music business, or a
patent pool as in the airline manufacturing and ICT field.
The models have been discussed in the background document of the
ESHG recommendations.35 It was suggested that patent pools may not
be easily adoptable to genetic disease testing, because, for instance, a
patent owner cannot be forced to participate, which would be detri-
mental if (a) major patent(s) would be missing from the pool. Such a
scenario is quite predictable.
In a clearinghouse, all the important patents are collected by a spe-
cific organisation that gives access to them against a fee. Some say that
it would be almost impossible to know what is in there. Others argue
that for gene patents a real clearinghouse model should be developed. It
should not just be copied from the IT field but adopted to best suit the
purpose. For instance, it could be split into several diagnostic topics,
such as cancer, cardio-vascular diseases etc.
Several variants of the clearinghouse model have been presented in
the present volume:36 (1) the information clearinghouse, providing a
mechanism for exchanging technical information and/or information
related to IP status of said information, such as patent search sites or
platforms;(2) the technology exchange clearinghouse model, providing
a list for available technologies for further negotiations, and assisting in
mediating and managing services; (3) the royalty collection clearing-
house model, settling payments of licence fees and (4) the open source
clearinghouse model, fostering the free exchange of technology.
The genetic clearinghouse could be a derivative of those variants.
For addressing current licensing issues, information and technol-
ogy clearinghouses would be particularly useful when it is not a priori

34
╇ A patent thicket is ‘an overlapping set of patent rights, which requires those who
seek to commercialise new technology to obtain licences from multiple patentees’,
see Van Overwalle, G., van Zimmeren, E., Verbeure, B. & Matthijs, G., ‘Models for
Facilitating Access to Patents on Genetic Inventions’, 7 Nature Review Genetics, 2006,
143–148. Also see Verbeure, B., ‘Patent pooling for gene-based diagnostic testing.
Conceptual framework’, Chapter 1 of this volume.
35
╇ ESHG, 2008.
36
╇ See van Zimmeren, E., ‘Clearinghouse mechanisms in genetic diagnostics. Conceptual
framework’, Chapter 5 of this volume.
328 Gert Matthijs and Gert-Jan Van Ommen

clear which IPs will be used. A fee structure used in royalty collect-
ing clearinghouses, as in ASCAP (American Society of Composers and
Performers) could be considered. Regional clearinghouses could be
coordinated globally. The practical hurdle is, again, the limited foresee-
able profit and the complexity of setting up the clearinghouse. Hence,
we believe that, like with the other successful examples of technology
exchange clearinghouses, the installation of the genetic clearinghouse
will have to be publicly funded.
Notably, the Nuffield Council37 and HUGO38 also supported the
further exploration of the clearinghouse model proposed by OECD39
to ease the obtaining of licences for genetic inventions by commercial
laboratories and to expedite the rapid and low-cost licensing of pat-
ented DNA sequences which have potential applications in clinical
diagnosis.

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╇����������������������������������������������������������������������������
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 A geneticist’s view 329

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21 ‘Patent tsunami’ in the field of
genetic€diagnostics
A patent practitioner’s view

Jacques Warcoin

21.1 Introduction
Patentability of human genes has always been a problematic issue in
terms of ethics, but in fact the real problem is a practical one, especially
in the field of genetic diagnostics. The key problem is a problem of
‘freedom to operate’.

21.2 Projects including genes or proteins

A recent article in Science provides interesting information on the phe-
nomenon of ‘patent tsunami’ in the field of genetic research.1 From this
analysis it appears for example that Bone Morphogenetic Protein 7, a
particular protein, has been the subject of a patent application twenty
times. The same is true for genes on protein CDKN2A. Furthermore,
the survey demonstrates that 150 genes/proteins have been the subject
of more than five patent applications.
So, if one intends to use such a protein or gene in a project, it is neces-
sary to make a ‘freedom to operate analysis’ (FTO). Such a FTO involves
identifying all corresponding patents and determining which ones are
valid and pertinent for the project, as well as to determine the corre-
sponding strategy, that is, negotiating, ignoring or challenging (depend-
ing on the strength of the patents), and negotiating if necessary.
The situation may be more complicated especially in the field of
diagnostics. In this field, genes or proteins are used as biomarkers to
characterize a certain pathology. Generally there is a need for several
genes or proteins for only one diagnostic test.
As an example, for the pathological diagnosis of some sarcomas
(Ewing tumor, alveolar rhabdomyosarcoma, desmoplastic tumor,

1
╇ K. Jensen, F. Murray, ‘Intellectual property landscape of the human genome’, 310
Science, 2005, 239 (2005)

331
332 Jacques Warcoin

synovialosarcoma) using PCR as a technology, eleven fusion transcripts

have to be searched altogether, which involve fourteen different genes,
namely EWS/FLI-1, ERG, ETV1, EIAF, FEV, PAX3, PAX7/FKHR,
SYT/SSX1, SSX2, and SSX4.
When carrying out an FTO analysis, it appeared that only EWS,
FLI-1, ERG, PAX3, PAX7 were patented. The patentees asked roy-
alties of amounting to 12% of the sale price of the diagnostic kit (7%
for EWS, FLI-1, ERG; 5% for PAX3 and PAX7). The royalties for
the use of PCR were 21% of the sale price! Which means that royalties
represent virtually one-third of the price of the diagnostic kit.
This analysis was done for Institut Curie (Paris) and the whole pro-
cess (research analysis and negotiations) took one year with correspond-
ing costs and impact of the royalties on the price of the test.
A new generation of tests is becoming increasingly significant, namely
microarrays (biochips technology). With this technology it is possible to
analyze up to 100,000 genes in one test; this is a wonderful tool but not
devoid of problems! In the case of biochips design for diagnosis of cen-
tral nervous system diseases (more than 100 diseases) there is a need of
around 800 DNA sequences on the microarray for said diagnostic test.
So apart from basic technology of microarrays (ten to twenty patents)
most of DNA fragments are patented (several times each!). A complete
analysis of the freedom to operate situation would involve several hun-
dred hours of analysis with corresponding costs and would imply hun-
dreds of negotiations, with corresponding costs!
But, said technology is vital for diagnostics in the future. So, what
are the possible remedies taking into account the fact that the issue is
taking an increasingly large place in other fields of research and devel-
opment as well?

21.3 Possible remedies to handle the patent tsunami

The main issue is what IP policy or strategies can be considered to bal-
ance the interest of the public and the interest of the companies in the
field of biotech and especially in the area of diagnostics.
The issue can be approached from two different points of view. A
first point of view can be situated upstream. More particularly, how to
limit the patent tsunami in the field? To limit the number and the scope
of patents, a set of initiatives may be examined, such as limitation in
term of patentability, limitation through formal requirements (US and
EPO), limitation of the scope of the claims (product claims concerning
genes are limited to the use described in the patent, cf. German and
French law), compulsory licenses (Belgian and French law), exemption
 A patent practitioner’s view 333

from infringement for particular acts (research, registration (US situ-

ation)), and exemption from infringement for particular people (phy�
sicians, academic searchers).
A second strategy focuses downstream: how to organize patents in
particular sub-fields of biotech to give a reasonable access to the cor-
responding DNA patents? To organize the patents in certain fields,
concerted right organizations, such as patent pools and clearinghouses,
may be set up.
An important point to keep in mind when analyzing the problem is
the possible impact of the proposed solution on the patent field in gen-
eral. It is well known in legal matters that when you create an exception
to solve one problem in one field you may create lots of collateral dam-
ages in the surrounding areas (for examples in pharmaceutical area or
in chemistry).

Limitations in terms of patentability

For a long time the proposed solution in Europe has been a rather dras-
tic one: no patentability for genes. This solution has been discussed ad
nauseam during negotiation of Directive EP 98/44 on the legal protec-
tion of biotechnological inventions.2 The result of almost ten years of
negotiations has been laid down in article 5 of the Directive which is
a compromise but nevertheless acknowledges the principle of patent-
ability of human genes “if obtained by a technical process” (to be fair,
it seems very unrealistic to imagine a gene obtained by a non-technical
process!).
Specific requirements for patentability have been introduced in article
5.3, which stipulates that “The industrial application ofâ•›…â•›gene must be
disclosed.” Equally relevant is recital 23, which states that “DNA with-
out indication of a function” is not patentable. Furthermore, recital 24
is important, which requires “To specify which proteinâ•›…â•›is produced
or what function it performs.”
Said provisions and recitals are not limitations on the principle of
patentability of human genes but merely provide the possibility to adapt
the criteria of patentability (industrial application as laid down in art.
57 EPC and enabling disclosure as stipulated in art. 83 EPC) to this
specific type of invention.

2
╇ Directive 98/44/EC of 6 July 1998 of the European Parliament and of the Council on
the legal protection of biotechnological inventions (OJ L 213, 30/07/1998 p. 0013) (see
http://europa.eu.int).
334 Jacques Warcoin

A similar position has been held by the USPTO, for which, in order
to fulfill the criteria of utility and enabling disclosure (35 USC 101 and
112) a patent must describe a utility which is credible, substantial and
specific. Said interpretation developed for biotechnology is now used
for all inventions in US.
The above US terminology has recently been used by a Board of
Opposition in the European Patent Office (EPO) in order to reject a
patent in an opposition (namely EP 630405, Icos case claiming a par-
ticular human gene for V28 receptor). However, the terminology has
been criticized and new wording has now been developed by the EPO.
In the most recent decisions of the Board of Appeal of the EPO dealing
with patentability of genes, it has been stated that industrial application
of said genes must be “profitable” and must not be “vague, indefinite
or obscure” and must also be “practical”.3
Although said notions are not yet well defined, they give the impres-
sion that the ‘golden age’ of patentability of any gene for putative uses
or theoretical use is definitely over. This is all the more so because it
becomes more and more difficult to use ‘post published data’ to sup-
port the description of such putative use. The industrial application
must be identified and described in the patent application as filed.
Once again, one should not think that these are new criteria for pat-
entability of genes. These notions are only specific notions for applying
the usual criteria in this specific field but can be implemented for inter-
pretation in other fields as well.

Limitations in terms of scope of a product claim

Some countries in Europe have decided to go one step further. This is
the case for France and Germany.

In France
In August 2004 France decided to implement Directive 98/44 in a spe-
cial way by using the preamble of said directive and introducing a new
article, which reads as follows:
The human body, at the various stages of its formation and development, and
the simple discovery of one of its elements, including the sequence or partial
sequence of a gene, cannot constitute patentable inventions.
Only an invention constituting the technical application of the function of a
human body element can be protected by a patent. This protection only covers
the element of the human body to the extent necessary for carrying out and

╇ See the EPO Board of appeal decisions T 0604/04 and T 0870/04.
3
 A patent practitioner’s view 335

making use of this specific application. This application must be specifically

disclosed in concrete terms in the patent application.
Are not patentable:
…
d) Total or partial sequences of a gene taken as such.
New Article L.611–18 (2nd §) of the French Intellectual Property Code (FIPC)

From the above text it is clear that the French implementation goes one
step further to reject the patentability of human genes. This is not really
a problem because most of the patents in force in France are European
patents designating France and so are not subjected as far as patent-
ability is concerned to French patent law but remain governed by EPC
articles and in theory by the corresponding jurisprudence. But no one
knows what may be the final impact of the above article on decisions of
French Courts.
Additionally, another provision was introduced, which stipulates:
The scope of a claim covering a gene sequence is limited to the part of this
sequence directly linked to the specific function disclosed in concrete terms in
the specification.
The rights generated by the grant of a patent including a gene sequence
cannot be opposed to a subsequent claim covering the same sequence if this
sequence complies as such with the requirements of Article L.611–18 and if it
presents [“expose” in French] another specific application of this sequence.
(New article L.613–2–1 of the FIPC)

Even if the wording of this provision is a little naive, the French ver-
sion clearly intends to limit the scope of a gene product claim: to
the extent necessary for carrying out and making use of this spe-
cific application; to the application specifically disclosed in concrete
terms in the patent application; to the part of this sequence directly
linked to the specific function disclosed in concrete terms in the
specification.
One will appreciate “the specific application specifically described”;
it is difficult to be more specific!

In Germany
On 28 February 2005, most of the provisions of the Directive had been
implemented in Germany. However, the German legislator also added
a major change to the German Patent Act (GPA).4 Consequently, the
German Patent Act differs from the Directive.

4
╇ German Patent Acts 1968–2004.
336 Jacques Warcoin

(3) The industrial application of a sequence or a partial sequence of a gene

must be concretely disclosed in the application by indicating the function ful-
filled by the sequence or partial sequence.
(4) If the subject matter of the invention is a sequence or a partial sequence
of a gene the structure of which is concordant to the structure of a natural
sequence or partial sequence of a human gene, then its use, for which the in-
dustrial application is concretely described in accordance with subsection 3,
has to be included into the patent claim. (Art. § 1 a, Patentgesetz, (introduced
by Gesetz zur Umsetzung der Richtlinie über den rechtlichen Schutz biotechnolo-
gischer Erfindungen, Bundesgesetzblatt 2005, Teil 1, Nr. 6, 28 January 2005,
p.€146–149))

This article clearly recommends limiting the scope of claim on human

genes as in France, but the specific use must be included in the claim,
which is not the usual rule especially in Europe for product protection.
From a legal point of view it is not a limitation.
So from a practical point of view the German approach would solve
the problem raised by the French draft (clear identification of the spe-
cific use), but would not as such introduce any limitation in the scope
of the claim.
Anyway, both approaches constitute a clear signal from the legisla-
tor for an erosion of the scope of a product claim. In most European
countries the Directive has been implemented as such, creating a lot of
disharmony in Europe which is in contradiction with the purpose of
the Directive.

Limitation through formal requirements

In order to limit the number of patents and especially of continuation
applications, divisional applications, specific requirements are under
development in the United States and in Europe. But the main draw-
back is that if it becomes more difficult to obtain several patents on
closely related inventions, the rules of the game will become so complex
that it will create uncertainty for the future.

Compulsory license
The principle of compulsory licensing is in theory the perfect solution
when only one patent is concerned. Such a specific article exists for
pharmaceutical products in French law. The provision on compulsory
licensing existed for pharmaceutical products as such in French law
since 1968, but has recently been adapted for diagnostics. Indeed, in
France several types of compulsory licenses exist, but the interesting
 A patent practitioner’s view 337

one for the purpose of the present article is compulsory licensing for
public health, which reads as follows:
In the public health’s interest and in case of no amicable agreement with the
owner of the patent, the Minister responsible for industrial property, at the
request of the Minister responsible for health may subject to ex officio licenses
in accordance with Article L613–17 any patents granted for:
a)╇medicines, medical device, medical device for in vitro diagnostic, side
(annex) therapeutic product,
b)╇processes for obtaining said products, products necessary in obtaining
such medicines or for processes for manufacturing such products
c)╇ ex vivo diagnostic method (article L.613–17 of FCIP)
Patents for said products, processes or diagnostic methods may be submit-
ted to ex officio licensing in public health’s interest only in the event of such
products, or the products obtained by said process or said methods are being
made available to the public in insufficient quantity and quality or at abnor-
mally high prices, or when the patent is enforced in conditions which are in
contradiction with public health’s interest or which are declared to constitute
an anticompetitive practice further to a final judicial decisionâ•›…5

My answer to the question as to whether such a provision on compul-

sory licensing is efficient in the pharmaceutical field, is yes because it
has never been used! It is the purpose of said article: to remain a pure
theoretical threat, no one in the pharmaceutical field would take the
risk of having an important licensing done by a court! So, in case of
a diagnostic (ex vivo), it is possible to request compulsory licenses for
patented genes.
But in the case where hundreds of patents are involved, it would be
virtually impossible to solve the problem even with compulsory licenses.
So, in the case of biochips, a compulsory license mechanism would be
unfeasible or would have a limited impact in the sense that it would only
be helpful to convince one of the patentees found to be reluctant.

5
╇����������������������������������������������������������������������������For an in-depth analysis of the French compulsory licensing regime for pub-
lic health,€ see van Zimmeren, E. and Requena, G., ‘Ex-officio Licensing in the
Medical Sector: The French Model’, in G. Van Overwalle (ed.), Gene Patents and
Public Health, Brussel, Bruylant, 2007, 123–147. For an analysis of the compul-
sory licensing regime for �public health in some other European countries, see for
Belgium, Van Overwalle, G., ‘The Implementation of the Biotechnology Directive in
Belgium and its Aftereffects. The Introduction of a New Research Exemption and a
Compulsory License for Public Health’, 37 International Review of Intellectual Property
and Competition Law (IIC), 2006, 889–920; for Switzerland, see Germann, C., ‘The
Swiss Approach to Compulsory Licensing for Diagnostic Products and Processes’,
in Van Overwalle, G. (ed.), Gene Patents and Public Health, Brussel, Bruylant, 2007,
149–156.
338 Jacques Warcoin

Specific organization in the field of genetics

The possibility to use patent pools or clearinghouses to solve the above
problem has been studied, especially in the industrial property commit-
tee of the Human Genome Organization.6
A patent pool would request that all the patentees in a specific area
put their patents together for example in a specific diagnostic area by
signing a patent pool agreement (as it exists in the MPEG LA pool in
the electronic field). In this case only one agreement would author-
ize a third party to have access to all necessary genes.7 But in fact,
this solution, which works in the electronic field because the patentees
are big companies with a perfect understanding of their interest, is not
possible with small start-ups in biotechnology, because all of them are
convinced that “their genes” are essential and they are are therefore
unwilling to pool them.

21.4 Conclusion
So for the time being, the only solution is to take the risk of infringing.
No efficient solution exists to solve the problem of biochips even for
large projects in biotechnology if said projects imply an unreasonable
royalty stacking because of the number of patents which are needed.

R eferences
Jensen, K. and Murray, F., ‘Intellectual property landscape of the human
genome’, 310 Science, 2005, 239
Germann, C., ‘The Swiss Approach to Compulsory Licensing for Diagnostic
Products and Processes’, in Van Overwalle, G. (ed.), Gene Patents and
Public Health, Brussel, Bruylant, 2007, 149–56.
van Zimmeren, E. and Requena, G., ‘Ex-officio Licensing in the Medical
Sector: The French Model’, in G. Van Overwalle (ed.), Gene Patents and
Public Health, Brussel, Bruylant, 2007, 123–47
Van Overwalle, G., ‘The Implementation of the Biotechnology Directive
in Belgium and its Aftereffects. The Introduction of a New Research
Exemption and a Compulsory License for Public Health’, 37 International
Review of Intellectual Property and Competition Law (IIC), 2006, 889–920
Verbeure, B., ‘Patent pooling for gene-based diagnostic testing. Conceptual
framework’, Chapter 1 of this volume

╇ Personal communication.

6

╇ See the contribution of Verbeure, B., ‘Patent pooling for gene-based diagnostic testing.
7
�
Conceptual framework’, Chapter 1 of this volume.
22 Gene patents and clearing models
Some comments from a competition
law perspective

Hanns Ullrich

22.1 Introduction
Competition law is not at the centre of the present book. It comes in
as an additional concern, influencing the search for proper models
for solving a problem of patent abundance, whose contours, however,
are not yet well realized and recognized in biotechnology. Like in
other areas of advanced technologies, the basic assumption is that the
field is crowded by a large number of patents, with ownership being
dispersed among many patentees, so that it becomes impossible for
anyone to work naturally coherent pieces of the technology without
first obtaining consent by many other patentees. Seeking such con-
sent may delay innovation, and raise its costs as royalties may have
to be paid. It also entails transactions costs relating to the search of
relevant patents and patentees, to determining the patents’ value, and
to negotiating license agreements, provided always that an agreement
may be found.
In the present volume, a large variety of models has been presented,
which either seek to avoid or to overcome the problem resulting from the
fragmentation of technologies into pieces of proprietary knowledge. In
a competition law perspective, this by itself represents quite a remark-
able merit of this volume, since it opens the view for a number of options
among which to choose when looking for a “pro-Â�competitive” or, at least,
for a non anticompetitive solution of the problem. However, for the com-
mentator, it creates an embarras de richesse. It is simply not possible to
bring all of these rather heterogeneous models – pools, clearinghouses,
open source licensing – into closer focus without losing oversight. Suffice
it, therefore, to illustrate the application of competition law to such mod-
els by briefly setting forth its analytical framework, its problems and its
limitations as they apply to patent pools (infra 22.2). They not only have
a long history of exposure to antitrust investigation, and, as of recent,

339
340 Hanns Ullrich

a€surprising come-back.1 Rather, they may also be used to put other mod-
els in contrast (infra 22.3 ‘From pools to clearing houses’), and, as imper-
fectly as they work, they also point to the source of the problems, which
is to be found in the design and the operation of the traditional systems
of patent protection (infra 22.3 ‘Back to patent law’).

22.2 Pooling

Competition law at the rescue of patent law

The comeback of patent pools is a result of both the – by now well
known – expansion of the scope and use of the patent system, and of a
reorientation, in fact a constriction of the understanding and the appli-
cation of the laws against restraints of competition. Pools have been
formed and recognized in the information and telecommunications
industry as a matter of the joint establishment and exploitation of com-
patibility standards for patented information interfaces, 2 and they have
been recommended as a way “to ensure reasonable access to patented
genomic inventions”.3 They are expected to help both clearing the
ominous “patent thicket” and breaking up blocking and facilitating the
use of complementary patents, but also to help containing the overall
sum of royalties due for using large numbers of patents, and to reduce
the transactions costs of seeking so many licences.4 Traditionally, how-
ever, pools are suspected to involve collusion as regards pricing of pat-
ented products and – almost necessarily – as regards royalty setting. In

1
╇ See in both regards R.Merges, ‘Institutions for Intellectual Property Transactions:
The Case of Patent Pools’, in R.Dreyfuss, D. Zimmerman, H. First (eds.), Expanding
the Boundaries of Intellectual Property, Oxford 2001, 123 et seq.
2
╇ See R. Bekkers, E. Iversen, K. Blind, ‘Patent Pools and Standardization: coordination
mechanisms for multi-party IPR holders’, Paper for the EASST 2006 Conference,
Lausanne, August 23–26th (available at http://www2.unil.ch/easst2006/);
R.€ Bekkers,€ K. Blind et al., ‘Case studies on the interface between research and
standardisation, and case studies on patent pools as coordination mechanisms’, (also:
INTEREST€ – Integrating Research and Standardisation), Contract No. 503594,
6th Framework Program (available at www.interest-fp6.org/.); R. Merges, loc. cit.
supra€n.€1; H. Ullrich, Patent Pools- Policy and Problems, in J. Drexl (ed.), Research
Handbook on Competition Law and Intellectual Property, Cheltenham, Edward Elgar,
2008 (139, et seq.) with references
3
╇ USTPO, ‘Patent Pools: A solution to the Problem of Access in Biotechnology Patents?’,
Washington D.C., December 5, 2000 (authored by J. Clark, J. Piccolo, B. Stanton,
K.€Tyson)
4
╇ See Commission, Guidelines on the application of Article 81 EC-Treaty to Technology
Transfer Agreements, OJEU 2004 C 101, 2 at no 214; US Dpt. Justice. FTC, Guidelines
for Licensing of Intellectual Property, Washington, D.C. April 5, 1995 (4 Trade Reg.
Rep. (CCH) 13.132) sub 5.5.; Ibid., Antitrust Enforcement and Intellectual Property
Rights: Promoting Innovation and Competition, Washington D.C. 2007, 64 et seq.
 A competition law 341

addition, they may amount to tying arrangements in that they result in

bundling patents, thus foreclosing market access for alternative tech-
nologies, and they tend to affect competition for alternative innovations
as it may exist between both the pool partners and these and third
parties.5
Both the US antitrust law authorities and the European Commission,
which, as a competition policy maker and enforcer, tend to follow
the welfare economics teachings of its US counterparts when pron-
ing a “more economics-based approach” to the application of the
EC-competition rules,6 seek to promote the exploitation of the benefits
of patent pooling, and thus, its pro-innovation and pro-competition
potential. To this effect, they rely on a set of narrow criteria which,
within a complex analytical framework, are intended to exclude or at
least to contain the risks of an (overly) anticompetitive operation or of
too far-reaching anticompetitive effects of pools.7 While this analytical
framework and its criteria cannot be set forth here in any detail, its
basic ambiguity and ambivalence results from the following features.
On the one hand, the framework rests on an artificial separation of the
different layers of pool building, which are: first, the internal cross-
licensing agreement between the partners of the pool; second, the pool-
ing arrangement as such with its agreement on third-party licensing and
its terms;8 and, third, the actual licensing agreement with third parties.
Notwithstanding their interdependency, the Commission analyzes and
assesses the first and the last mentioned agreements in isolation and
separately from the pooling agreement as if all of them were not build-
ing blocks of an overall arrangement for the private regulation of the

5
╇ See Commission, Transfer of Technology Guidelines, loc. cit. sub no. 213 and US
Dpt. Justice, FTC, see n. 4.
6
╇ See Commission, Guidelines on the application of Article 81(3) of the Treaty, OJEU
2004, C 101, 97 sub no. 5, et passim. The reasons for such follower conduct are mani-
fold, both theoretical and practical, but also political in that regulatory competition
of competition law and policy is driven by globalization and the objectives of main-
taining international competitiveness (the Lisbon Agenda), See Commission, A pro-
active Competition Policy for a Competitive Europe, COM (2004) 293 final, Brussels,
20€April 2004.
7
╇ See references see n. 4, and for a critical analysis Ullrich, see n. 2; ibid., ‘Patents Pools:
Approaching a Patent Law Problem via Competition Policy’, in Cl.-D. Ehlermann, I.
Atanasiu (eds.), The Interaction between Competition Law and Intellectual Property Law,
10 European Competition Law Annual 2005, Oxford 2007, 305 et seq.
8
╇ While pooling arrangements may take the form of a – legally separate – joint licensing
agency of pool partners, the systematic and full acquisition on the market of bundles of
patents for licensing of a technology by an independent enterprise, which makes itself
a business out of acquiring and selling technologies does not raise pooling problems
under the competition rules (but may raise concerns of controlling market power).
342 Hanns Ullrich

market.9 On the other hand, the basic distinction between horizontal

and vertical agreements in restraint of trade, which is all the more rele-
vant in the context of pooling as technology and product markets need
to be (and are) distinguished, and as pool partners may well be present
on both or – following new business models which are now common
in both informatics and biotechnology – only on the technology mar-
ket, this distinction is made not with a view to existing relationships of
rivalry on the market, but with respect only to the patents in question.
The test is whether these relate to substitutive or to complementary
technologies, the idea being that only the former indicate an actual
horizontal relationship with its increased risks of anticompetitive col-
lusion, whereas the latter would point to a need to their combined use,
this being the way to fully and immediately bring the potential of the
specific technology to bearing (nota bene of a technology, whose devel-
opment, whether done jointly or independently, results, of course, from
a business rivalry).10
While such a reductionist analysis may facilitate pooling, rather strict
criteria of legality are intended to contain it within limits. Thus, it is
only in case the pool relates to complementary patents that are “essen-
tial” to work a technology in accordance with some pre-defined (more
or less mandatory) specifications that the pooling agreement as such
will be considered to be pro-competitive by nature, and, therefore,
admissible per se.11 This is a formal test, which has been developed
with respect to pools supporting technological compatibility standards
in the infor�matics and telecommunication industries. While it may be
used in other standardization contexts as well, such as standardized
testing or measurement, in the absence of such a pre-set framework,
it tends to become a rather loose test, unless it is construed strictly
in accordance with its purpose. This, indeed, is to allow only pools
supporting access to some crucial (technological) input or material, or

9
╇ For details see Ullrich, see n. 7.
10
╇ See Commission, Transfer of Technology Guidelines, loc. cit. at nos. 26 et seq., 215
et seq.; the relationship between the determination of the competitive position of pool
partners and the determination of the competitive nature of the pooled patents is not
made entirely clear by the Guidelines.
11
╇����������������������������������������������������������������������������������Under the competition rules of the EC Treaty, the distinction between pro-compet-
itive arrangements, which, for this reason, remain outside Art. 81(1) of the Treaty,
and agreements, which, due to their presenting anticompetitive features, need to be
assessed under Art. 81(3) of the Treaty, mainly relates to the distribution of the bur-
den of proof according to Art. 2 Reg 1/2003 of December 16, 2002 on the implemen-
tation of the competition rules laid down in Art. 81 and 82 EC Treaty (OJ EC 2003
L€1,1); for the relationship between Art. 81(1) and (3) and their different tests see CFI
of 2 May 2006, case T- 328/03, O2/Commission (Rep. 2006 II 1231).
 A competition law 343

to some unavoidable gateway or “facility”,12 that cannot be obtained

otherwise, in particular not by way of technological circumvention.
Biotechnology may offer some examples, in particular in the field of
gene research for medical purposes.
Likewise, the fact that outside pooling of essential patents, com-
petition authorities – at least the European ones13 – tend to be rather
reluctant to admit pools in that they are critical of pooling of substi-
tute patents, and vague as regards the balancing terms for weighing
the pro- and the anticompetitive effects of broader pools, suggests that
such pooling arrangements cannot be expected to become generally
recognized.14

Competition law dilemmas

In fact, when evaluating patent pools, competition authorities face a
dilemma. The need for pooling arises only in cases of abundance and
dispersed ownership of patents, and it increases as the number of pat-
ents (and patentees) increases. To a certain extent, the efficiency jus-
tification becomes the more plausible the bigger the pool is. However,
as the pool grows it is likely to acquire and expand market power, with,
as a result, restrictive effects becoming ever more worrying.15 While,
under the economics-based approach of modern competition policy,
competition authorities will not become concerned unless a restrictive
arrangement passes the threshold of some market power, the criteria of
art. 81(3) become ever more difficult to comply with as market power
increases. Moreover, when “pools…hold a strong position on the market
…”,16 the terms of assessment change in that art. 82 considerations are
introduced: the pool now “should be open and non-discriminatory”.17
Whether this means only open and non-discriminatory access by third
parties to the acquisition of licenses, or also their admission to the pool
as members is not quite clear. Nor is it clear where the threshold of a

12
╇ The test is more related to the “indispensability” – criterion under Art. 81(3)
EC-Treaty than to the “essential facility”– doctrine under Art. 82 of the Treaty, the
latter, however controversial (see recently A. Castaldo, A. Nicita, ‘Essential Facility
Access in Europe: Building a test for Antitrust Policy’, 3(1) Rev. L. Econ 83 (2007);
A. Stratakis, ‘Comparative Analysis of the US and EU Approach and Enforcement of
the Essential Facilities Doctrine’, E.C.L R 2006, 434, both with references), having
its own, independent scope of application in accordance with Art. 82 of the Treaty.
13
╇ US DoJ/FTC, Antitrust Enforcement, see n. 4 at 74 et seq. (77/78) take a more gen-
erous view.
14
╇ But see the references in n. 2 regarding empirical evidence.
15
╇ Commission, Transfer of Technology Guideline, 224. 16╇ Ibid.
17
╇ Ibid., 224, 226 (“open” meaning at least non exclusive licenses).
344 Hanns Ullrich

“strong market position” is to be set. At any rate, it is a critical one. On

the one hand, it means that the pool is allowed to determine the general
conditions of the market as long as it does so in a non-discriminatory
way and without anti-competitive effects on downstream markets.18 On
the other, it necessarily imposes a system change, which generally tends
to affect patents that can usefully be exploited only by way of pool-
ing.19 Indeed, facilitating third-party licensing via pooling is one thing.
Requiring, as a matter of competition law, an open licensing policy, i.e.
non-discriminatory licensing to everyone, tends to convert the exclusiv-
ity principle of patent protection into a mere liability system, i.e. into a
reward-by-compensation rule.

22.3 Avoiding competition law

From pools to clearinghouses

Containing the power of pools by outlawing excessively restrictive
arrangements will not always work 20 nor will it be enough. Even per-
fectly legitimate, because limited pools are subject to additional control
as regards their licensing activities when they actually dominate the
market.21 Whether this is nevertheless a comfortable or, to the con-
trary, an uneasy position is a matter of the business strategy of the pool
and of the enforcement policy of competition authorities. In any case,
patent exploitation by pooling thus tends to come under a kind of a
regulatory regime. One way to avoid this is to take competition law ser-
iously by asking not only whether a specific, restrictive feature of the

18
╇ Ibid., 226 requiring also, apparently with a view to competition on down streams
markets, “fair” royalties, whatever this means (see Ullrich, n. 2, sub. II. 2. b).
19
╇ See Merges, n. 1, and note that it is the patentee who, via the pool, determines the
reward due to him, with the weapon of enjoining non-abiding ‘infringers’ from using
the potential invention still being �available to him as a matter of legal principle, unless
additional competition law considerations come in.
20
╇ Commission, Transfer of Technology Guidelines, 227 insists that pool partners must
remain free to individually license their pooled patents. However, given the transac-
tion cost rationale of pooling, this is largely a hypothetical freedom. It may exception-
ally become a reality in cases of big deals with important licensees, but it does little to
reduce the overall problem of pooling.
21
╇ Thus, it is precisely pools of “essential” patents which will be most exposed to control
of whether they really adhere to an open and non-discriminatory licensing practice
under the case law of ECJ of 5 October 1988, case 238/87, Volvo/Veng, Rep. 1988
I 6211; of 6 April 1995, cases C-241/91P and C-242/91 P, RTE, ITP/Commission,
Rep€1995 I 743; CFI of 17 September 2007, case T-201/04, Microsoft/Commission,
not yet officially reported; BGH of 13 July 2004, WuW DE-R 1329 (Standard
Spundfass€II) = 36 IIC 741(245) annot. Leistner.
 A competition law 345

pool agreement is “indispensable” within the meaning of art. 81(3) of

the EC Treaty. Rather the test should be whether, as such, pooling is
indispensable or whether less restrictive institutional arrangements are
available. The enormous merit of the present book is that it purposively
pointed to just such alternatives, and that they were presented in all
their diversity.
Again, these models cannot be commented upon here. Open source
models have engendered a rich literature, including some on their anti-
trust implications.22 How far these models may carry as regards expan-
sive patent protection, and whether they always follow a free access
rationale rather than a business strategy, needs to be examined more
closely. 23 Clearinghouses as well may raise problems under competi-
tion law in case they allow too much information exchanges on com-
petition related data, or in case they otherwise facilitate collusion. 24
However, such risks can easily be avoided by a proper design of the
arrangement without affecting its efficient functioning. This essen-
tially would be to identify, to classify, and to group relevant patents
by reference to specific technological purposes, possibly also to trans-
late the patented technical teachings into user friendly information, to
help to interpret and to technically evaluate them, and possibly even
to provide a platform for individual licensing transactions. Indeed, fre-
quently enough the patent thicket is more a matter of the number and
of the strategic positioning of patents than of the number of patentees.
Once the boundaries and a roadmap25 of the thicket have been estab-
lished, individual negotiations with the limited number of patentees
may become a feasible alternative to or an additional option of pooling
arrangements.26

22
╇ See Chr. Heath, ‘Kartellrecht’, in G. Spindler (ed.), Rechtsfragen bei open source,
Cologne 2004, 267; L. Böcker, ‘Mit freier Software gegen den Wettbewerb? Die
General Public License (GPL) als horizontale Wettbewerbsschränkung’, in Festschrift
F. Säcker, Berlin 2006, 69, all with references, but see for the US Wallace v. IBM, 38
IIC 252 (available at www.ca7.uscourts.gov/tmp/7P1FG159.pdf).
23
╇ See as regards a standardization context T. Simcoe, ‘Open Standards and Intellectual
Property Rights’, in H. Chesborough et. al., Open Innovation – Researching a New
Paradigm, Oxford 2006, 161; J.West, ‘Does Appropriability Enhance or Retard
Innovation’, in Chesborough, Open Innovation, 109.
24
╇ See ECJ of 23 November 2006, case C-238/05, Asnef-Equifax, Ausbane, Rep. 2006
I€11145, and generally Wagner-von Pa ‘ “Who is it that can inform me”- The Exchange
of Identifying and non-Identifying Information’, Eur. Comp.L.Rev., 2007, 264
25
╇ Its value depending on how precisely it presents the “intersection”, i.e. the scope and
limits of neighbouring and overlapping patents.
26
╇ E.g. so as to make individual licensing by pool partners a realistic option (see n. 20).
346 Hanns Ullrich

Back to patent law

Relying on clearinghouses rather than on pooling arrangements also
corresponds better to the causes underlying the proliferation of patent
thickets in certain fields of technology, a matter which need not be
taken for unavoidable. True, increased patenting has to do with the way
business models change in the information society, patented technol-
ogy becoming itself a product for sale rather than being only a teaching
for production. But both the expansion of patent protection as regards
subject-matter and scope and the trend to strategic patenting by at least
some segments of industry,27 contribute to such overcrowding of some
fields of technology by claims to exclusive use. The problem of patent
thickets thus is, at least in part, a self-created one, which does not neces-
sarily justify power building through pooling, on the contrary. On the
one hand, a liberal attitude on pooling invites even more patenting, 28
thus aggravating the problem. On the other hand, competition law is
only concerned with the containment of anticompetitive agreements
and of abusive conduct in asymmetrically structured markets. It can
neither induce private institution-building that adequately fits its pur-
pose29 nor provide the means for an optimization of the design and the
operation of the patent system.30
Clearinghouses directly attack a deficit of the patent system, which
is its insufficient transparency (notwithstanding its requirements
of Â�disclosure, examination – at least in major jurisdictions – and

27
╇ See O. Granstrand, The Economics and Management of Intellectual Property, Cheltenham
1999 (paperback 2000), 176 et seq., 209 et seq.; K. Blind, The Economics of Standards,
Cheltenham 2004, 125 et seq.; id. The influence of Strategic Patenting on Companies
Patent Portfolios, Zentrum für Europäische Wirtschaftsforschung (ZEW), Discussion
Paper 07–013 (available at ftp:/ftp.zew.de/put/zew-does/dp/dp07013.pdf); T. Simcoe,
Explaining the Increase in Intellectual Property Disclosure (available at www.rotman.
utoronto.ca/timothy.simcoe.papers/SU-IPR-Disclosure); more generally European
Patent Office (ed.), Scenarios for the Future, Munich 2007, 15 et seq.; 34 et seq.
28
╇ But see Melamed and Lerch, ‘Uncertain Patents, Antitrust, and Patent Pools’, in
Ehlermann, Atanasiu (eds), 10 Eur. Comp. L. Ann. 273 (2007).
29
╇ For a critique of the Commission’s recommendation of “democratic pooling”
(Technology Transfer Guidelines, 230 et seq.) see Ullrich, ‘Patent Pools – Policy and
Problems’, in J. Drexl (ed.), Handbook on Competition Law and Intellectual Property,
sub II 3f); Ullrich, ‘Patent Pools’, in Ehlermann, Atanasiu, 10 Eur. Comp.L. Ann at
320 et seq (2007).
30
╇��������������������������������������������������������������������������������������� The need for such optimization and the reasons for current reform efforts, in particu-
lar in the USA (and unfortunately not in the EU), reach far beyond competition law
and policy, see only S.Scotchmer, Innovation and Incentives, Cambridge (Mass.) 2004,
97 et seq.; 127 et seq; National Research Council, A Patent System for the 21st Century,
Washington D.C. 2004, passim; for the limits of competition law, H.Ullrich, ‘Le droit
de la concurrence, proprieté intellectuelle et accès à l’information technologique’,
in M.Buydens,S.Dusollier (eds.). L’intérêt général et l’accès à l’information en propriété
intellectuelle, Brussels 2007, 249.
 A competition law 347

registration).31 Clearing may be left to private organizations or consid-

ered to be part of a patent office’s service function,32 and possibly it is
a task to be taken in charge by both. In either case, it would facilitate
access to “essential” technology while alleviating regulatory control by
competition law.
Moreover, to the difference of open source models, and also to the
difference of the practical operation of at least the larger pools, clear-
inghouses maintain the property rationale of the patent system, i.e. its
principle of exclusivity-based individual exploitation.

22.4 Conclusion
Obviously, collaborative clearing models are not the answer to all prob-
lems. Frequently, pools are not a reaction to the patent thicket, but a
result of joint research and development by the pool partners. Thus,
pools cannot easily be transformed ex post in mere clearing arrange-
ments. Also, clearing will do little, if anything, to solve the problem of
cumulative royalties, a matter which is of particular concern in biotech-
nology.33 The more general point then is to find out which exactly is the
problem that needs to be solved, and which institutional arrangement is
best suited to bring about the solution. Competition law has no answer
to this question, except that it favors the least restrictive approach, if
restriction needs to be tolerated at all. The concepts thus are a mat-
ter for other disciplines. Competition law is only concerned with their
effects. It is not interested in the form of institutions or of organiza-
tional arrangements, but in the distortion of competition, which choos-
ing and adopting such an arrangement actually produces.

R eferences
l i t er at u r e

Bekkers, R., Iversen, E. and Blind, K., ‘Patent Pools and Standardization:
coordination mechanisms for multi-party IPR holders’, Paper for the

31
╇ Think only of the effects which the length of the granting procedure (almost 4 years
at the European Patent Office, see EPO, Annual Report 2006,18,22) or the ratio of
application to grants (less than 50%) must have on business decisions to innovate;
the problem has been recognized by the EPO, see A. Brimelow, Press statement of
17€October 2007 (available at www.epo.org/topics/news/2007/20071017_de.html).
32
╇ These tend to be extended not only as a result of a division of labour between the
European Patent Office and national offices, but as a matter of promoting innovation,
see Gowers Review of Intellectual Property, London (HMSO) 2006, sub. 5.40, 6.
33
╇ But not dealt with by Commission, Transfer of Technology Guidelines, 45.
348 Hanns Ullrich

EASST 2006 Conference, Lausanne, August 23–26th (available at http://

www2.unil.ch/easst2006/Papers/B/Bekkers%20Iversen%20Blind.pdf)
Bekkers, R., Blind, K. et al., Case studies on the interface between
research and standardisation, and case studies on patent pools as
coordination mechanisms, (also: INTEREST – Integrating Research
and Standardisation), Contract No. 503594, 6th Framework Program
�(available at www.interest-fp6.org/).
Blind, K., The Economics of Standards, Cheltenham, 2004
Blind, K. et al. The influence of Strategic Patenting on Companies Patent
Portfolios, Zentrum für Europäische Wirtschaftsforschung (ZEW),
Discussion Paper 07–013 (available at http://opus.zbw-kiel.de/
volltexte/2007/5501/pdf/dp07013.pdf).
Böcker, L., ‚Mit freier Software gegen den Wettbewerb? Die General
Public€License (GPL) als horizontale Wettbewerbsschränkung’, in
Festschrift F.€Säcker, Berlin, 2006
Brimelow, A., Press statement of 17 October 2007 (available at www.epo.org/
topics/news/2007/20071017_de.html)
Castaldo, A. and Nicita, A., ‘Essential Facility Access in Europe: Building a
test for Antitrust Policy’, 3(1) Rev. L. Econ, 2007, 83
Clark, J., Piccolo, J., Stanton, B. and Tyson, K., Patent Pools: A solution to the
Problem of Access in Biotechnology Patents?, USPTO, Washington D.C.,
December 5 2000
European Commission, A pro-active Competition Policy for a Competitive
Europe, COM (2004) 293 final, Brussels, 20 April 2004
European Patent Office (ed.), Scenarios for the Future, Munich, 2007
Granstrand, O., The Economics and Management of Intellectual Property,
Cheltenham 1999 (paperback 2000)
Heath, C.‚ ‚Kartellrecht’, in G. Spindler (ed.), Rechtsfragen bei open source,
Cologne, 2004, 267
Gowers Review of Intellectual Property, London, 2006 (available at www.
hm-treasury.gov.uk/independent_reviews/gowers_review_intellectual_�
property/gowersreview_index.cfm)
Melamed, D. and Lerch, D., ‘Uncertain Patents, Antitrust, and Patent
Pools’, in European Competition Law Annual 2005: The Interaction between
Competition Law and Intellectual Property Law, Claus Dieter Ehlermann
and Isabela Atanasiu (eds.), 2007, 273
Merges, R., ‘Institutions for Intellectual Property Transactions: The Case
of Patent Pools’, in R. Dreyfuss D. Zimmerman and H. First (eds.),
Expanding the Boundaries of Intellectual Property, Oxford, 2001, 123
National Research Council, A Patent System for the 21st Century, Washington
D.C., 2004, passim
Simcoe, T., ‘Open Standards and Intellectual Property Rights’, in
H.€Chesborough et. al., Open Innovation – Researching a New Paradigm,
Oxford, 2006
Scotchmer, S. Innovation and Incentives, Cambridge (Mass.), 2004
Simcoe, T., Explaining the Increase in Intellectual Property Disclosure (www.�
rotman.utoronto.ca/timothy.simcoe/papers/SSO_IPR_Disclosures.pdf)
 A competition law 349

Stratakis, A., ‘Comparative Analysis of the US and EU Approach and

Enforcement of the Essential Facilities Doctrine’, E.C.L.R., 2006
Ullrich, H. ‘Patents Pools: Approaching a Patent Law Problem via
Competition Policy’, in Cl.-D. Ehlermann and I. Atanasiu (eds.), The
Interaction between Competition Law and Intellectual Property Law, 10
European Competition Law Annual 2005, Oxford, 2007
â•… ‘Patent Pools- Policy and Problems’, in J. Drexl (ed.), Research Handbook on
Competition Law and Intellectual Property, Cheltenham, Elgar, 2008, 139
â•… ‘Le droit de la concurrence, proprieté intellectuelle et accès à l’information
technologique’, in M. Buydens and S. Dusollier (eds.), L’intérêt général et
l’accès à l’information en propriété intellectuelle, Brussels, 2008, 249
Wagner-von Papp, ‘Who is it that can inform me’ – The Exchange of
Identifying and non-Identifying Information’, Eur. Comp.L.Rev., 2007
West, J., ‘Does Appropriability Enhance or Retard Innovation’, in H.
Chesborough, et. al., Open Innovation – Researching a New Paradigm,
Oxford, 2006

l egisl at ion

European Commission, Guidelines on the application of Article 81

EC-Treaty to Technology Transfer Agreements, OJEU-C, 2004, 101/214
US Department of Justice (DOJ), Guidelines for Licensing of Intellectual
Property, Washington, D.C. April 5 19954 Trade Reg. Rep. (CCH)
13.132
US Department of Justice (DOJ), Antitrust Enforcement and Intellectual
Property Rights: Promoting Innovation and Competition, Washington D.C.
2007
23 Access to genetic patents and
clearing€models
An economic perspective

Reiko Aoki

23.1 Introduction
Several institutions have been identified as mechanisms that can be used
to facilitate access to genetic patents:1 research exemptions, compul-
sory licensing, patent pools,2 various clearinghouses3 and open source
collectives.4 Following van Zimmeren, a major distinction between
mechanisms “for access” and mechanisms “for access and use” can
be made.5 Applying an economic logic, however, leads to a subcatego�
rization which differs from van Zimmeren’s classification, and leads
to �subdividing the second category into collective rights organizations
(CRO) and incomplete contract structures (ICS). Incomplete �contract
structures is expansion of open source and includes contractually
�structured liability.
Each category has a different purpose: “for access” clearing mech-
anisms are characterized by network and transaction cost reduction,
CROs set prices to IP so that they will be used optimally for �production,
and ICSs address incontractable, uncertain and dynamic nature of
innovation. While there are working examples of the aforementioned

1
╇ Van Overwalle, G., van Zimmeren, E., Verbeure, B. and Matthijs, G., 2005. ‘Models
for Facilitating Access to Patents on Genetic Inventions’, 7 Nature Review Genetics,
February 2006, 143–8.
2
╇ Verbeure, B., ‘Patent pooling for gene-based diagnostic testing. Conceptual
Â�framework’, Chapter 1 of this volume.
3
╇ van Zimmeren, E., ‘Clearinghouse mechanisms in genetic diagnostics. Conceptual
framework’, Chapter 5 of this volume.
4
╇ Hope, J., ‘Open source genetics. Conceptual framework’, Chapter 12 of this
volume.
5
╇ van Zimmeren, see Chapter 5 of this volume. Also see van Zimmeren, E., Verbeure,
B., Matthijs, G. and Van Overwalle, G., ‘A Clearinghouse for Diagnostic Testing: the
Solution to Ensure Access to and Use of Patented Genetic Inventions?’, Bulletin of the
World Health Organization, 2006, 352–9.

350
 An economic perspective 351

systems, we will also discuss the contractually constructed liability

regime6 which is a new concept.
We categorize the clearing mechanisms by function.7 Mechanisms
such as “information clearinghouses” (information CH) and “tech-
nology exchange clearinghouses” (technology exchange CH) are “for
access” and purely for exchange. The purpose of information CH is for
IP or technology owners to disseminate and the potential users to find
the information about the technology. Technology exchange CH go
one step further in that technology is sold or licensed in addition. The
property owners and users interact directly and property owners retain
ownership.
There are institutions that promote both “access and use” such as
copyright collection societies (CCS) and patent pools.8 We will refer to
this subgroup as “collective rights organizations” (CRO).9 In adÂ�dition,
we expand open source models to include another “access and use”
institution, contractually constructed liability (CCL). Both open source
and CCL take into account the uncertain and dynamic nature of innov-
ation. I will refer to this subgroup as “incomplete contract structures”
(ICS) because they define relationships and contingent transfers (fees)
when there are non-contractable elements such as risk.

23.2 Exchanges
The benefits of information CH and technology exchange CH come
from reduction of transaction costs, primarily search costs. Typical
examples of this category are PIPRA10 and GBIF.11 There is add-
itional reduction of contracting costs if the exchange offers some sort
of stan�dard licensing agreements that provider and user can adhere

6
╇�����������������������������������������������������������������������������������Rai, A.K., Reichman, J.H., Uhlir, P.F. and Crossman, C., ‘Pathways across the val-
ley of death: novel intellectual property strategies for accelerated drug discovery’,
Chapter 17 of this volume.
7
╇ Aoki, R. and A.Schiff, ‘Promoting Access to Intellectual Property: Patent Pools,
Copyright Collectives and Clearinghouses’, 38 R&D Management, 2008, 118–204 at
186 also uses ownership to classify clearinghouses.
8
╇ May also include patent royalty collection clearinghouse (van Zimmeren, see Chapter
5 of this volume.
9
╇ Merges, R.,’Contracting into liability rules: intellectual property rights and collective
rights organizations’, 84 California Law Review, 1996, 1293–1393. The aforemen-
tioned “copyright collection societies” are equivalent to what Merges refers to as
“royalty collection organizations”.
10
╇ Bennett, B. and Boettiger, S., ‘Case 5. The Public Intellectual Property Resource
for Agriculture. A standard license public sector clearinghouse for agricultural IP’,
Chapter 8 of this volume.
11
╇ Edwards, J.L., ‘Case 3. The Global Biodiversity Information Facility. An example of
an information clearinghouse’, Chapter 6 of this volume.
352 Reiko Aoki

to. Standard licenses promote exchange and are provided as a ser-

vice. The design of a license itself is not the objective as in “access
and use” mechanisms. We therefore include standard licensing CH12
in this group. We believe the Creative Commons13 is another example.
Creative Commons not only reduces search cost by providing informa-
tion about available materials, but it also reduces contracting cost by
providing licensing formats. That is, Creative Commons undertakes
a “task of devising and encouraging the use, not of standard licences,
but of standard clauses for licences, standard mechanisms for resolving
common licensing problems” proposed by Spence.14
Exchanges are based on the “network effect” that arises from the
exchanges’ ability to reduce search costs. The particulars of the network
effect must be taken into account for a successful formation of an exchange.

Network effects
An institution has a network effect when benefit to the members depends
on the number of members. The following is a very simple model that
captures this effect. There is a continuum of agents, represented by
interval [0,1]. Agents are indexed by x ϵ [0,1]
An agent x gets benefit of 1 − x per interaction with another agent.
In case of an exchange, benefit comes from learning about the others’
technology. All agents benefit but the magnitude of the benefit depends
on the agent and we index the agents by their magnitude of benefit.
That is, if x > y, then agent y gets higher benefit per interaction than
agent x. Suppose n is the number (in this case proportion of agents to
be precise) that are members in the exchange. We can formulate the
surplus of an agent x ϵ [0,1] as,

n(1 − x ) − p if x is a member
U (x ) = 
0 otherwise

where p is the price of joining the exchange. Greater the number of

members and lower the price, greater the surplus. The marginal agent,
x̂ , is indifferent between joining and not joining the exchange,
U(x̂) = n(1 – x̂) – p = 0

12
╇ van Zimmeren, see Chapter 5 of this volume.
13
╇ Nguyen, T., ‘Case 6. The Science Commons Material Transfer Agreement Project.
A€standard license clearinghouse?’, Chapter 9 of this volume.
14
╇ Spence, M., ‘Comment on the conceptual framework for a clearinghouse Â�mechanism’,
Chapter 11 of this volume.
 An economic perspective 353

0.25

0.2

0.15
p
0.1

0.05

0
0.2 0.4 0.6 0.8 1
x
Figure 23.1 Network effect

This also means all the agents in interval [0, x̂] are in the exchange
since all agents y < x̂ have higher surplus. Noting that n = x̂,15 we have,
x̂(1 – x̂) = p.
This is the relationship between price and those that decide to be
members, i.e., demand function of membership. However the rela-
tionship between demand (to be member) and price is not monotonic
(Figure€ 23.1). Higher price can increase demand for some region.
Furthermore, at any price, p, there are two levels of membership that are
equilibria, one with low membership, x L (p) and the other high,€x H(p).
It is possible for an exchange to be in equilibrium with very few
members. However this is not a stable equilibrium. Any deviation of
membership above x L(p) will move the market to the other equilibrium,
x H(p). Since non-members have no surplus, it is better to be in equili�
brium with larger membership.

Model of an exchange
The interesting question with exchanges is how they can be successfully
formed. To answer this question we differentiate between providers of
information or technology and the users. Only the number of providers
matter for a user while only the number of users matter for a provider.

╇ Since all consumers with index x ϵ [0, x̂] join the exchange, x̂ is also the proportion of
15

consumers that join the exchange. If there are total of N consumers, then number of
consumers that join the exchange is n = Nx̂. Rather than using this number in which
case N cancels out, we use x̂.
354 Reiko Aoki

Except for the indirect effect of making the exchange attractive to the
users, there is no gain to provider from having more providers. It would
just increase competition.
Suppose both providers and users are separately distributed over
interval [0,1]. The surplus of a provider (xp) and a user (xs) are given
below. The variables n P and nU are the number of exchange members
and cost (price) of participating are denoted by cP and cU.

nU (1 − x P ) − cP if member of exchange

U ( xP ) = 
 0 otherwise

nP (1 − xU ) − cU if member of exchange

U ( xU ) = 
 0 otherwise

Again, as in the case of simple network example, if the marginal agent

is x P , then n P = x P. From the indifference conditions we obtain the fol-
lowing two demands for memberships, one for users and the other for
providers,
xU (1 − x P ) = cP , x P (1 − xU ) = cU .
We can rewrite the first equation as,
cP
xP = 1 − .
xU
This is a provider’s demand function for membership: how many
providers join the exchange given cost is cP , and there are xU users in
the exchange. There will be more providers joining when cost is low
and there are more users.
Equilibrium memberships, x P(cP, cU ) and xU(cP , cU ), satisfy the two
demand functions at once. Curves DP and DU in Figure 23.2 are the
graphs of the two functions. There are two intersections, meaning there
are two levels of equilibrium membership: one when membership from
both sides is high and one when membership is low. Because of the net-
work effect, exchange can be in equilibrium at a very small scale.
If the costs are too high, there may be no intersection between the
two curves, such as DP and D′U, i.e., no one will join the exchange. In a
case like this, one can subsidize the users to make them join. This will
also induce providers to join.
It is not necessary to lower the cost (price) for both sides. In the graph
D′U is user demand when cU = 0.3. One only needs to lower cU from 0.3
to 0.1 (curve DU ) in order to have an equilibrium. It is also possible to
reduce providers’ cost and shift DP instead. A typical example of this
 An economic perspective 355

0.8 DU

D�U
0.6
DP
xu
0.4

0.2

0
0.2 0.4 0.6 0.8 1
xp
Figure 23.2 Exchange membership demand

is how community newspapers are financed. Some allow free classified

advertisement so people will buy the newspaper while some charge for
advertisement and distribute the paper for free.

Formation and stability

Because of the network effect, some form of coordination is necessary to
form an exchange. It is necessary to get a critical mass, at least as large
as x L(p). If price is lowered slightly to p´ < p , the exchange will converge
to a higher equilibrium, x H (p´). This demonstrates the importance of
coordinated subsidy to guarantee an equilibrium. The role of financial
resource at early stage of formation may be essential for a successful
launch of an exchange. It is not surprising that SNPs had financial
backing from the Welcome Trust and GBIF had NSF support.
This equilibrium is stable, meaning the economy will not move
away even if there is a small perturbation of prices. In this sense, once
attained, institutions with network effects are very stable.
We observed with the simple model that in order to accumulate crit-
ical mass, one does not have to lower price (or cost) to everyone. It is
sufficient to make it attractive to one side, providers or users. Call to
join can concentrate on one side of the exchange. If institutions such
as governments and international organizations are to subsidize forma-
tion, it may be more cost effective to concentrate on one side. Of course,
information about the exchange’s existence must be disseminated to
both sides.
356 Reiko Aoki

23.3 Collective rights organizations

Collective rights organizations (CROs) provide a bundle of goods,
usually IP rights and prices are set as a bundle. We focus on copy-
right collection societies (CCS) and patent pools. We may also include
open source CH as special case of CRO. Open source is “priced”
so that the price is not a payment to the organization prior to use
but is the forgone future earnings. This can also be interpreted as an
extreme example of “low payment”16 required for blanket licenses to
be �pro-competitive.
CCS and patent pools differ in the access patterns of the users. Each
CCS licensee (IP user) accesses a different combination of goods from
the bundle. Open source is similar to CCS in this regard. For instance,
in case of American Society of Composers, Authors, and Publishers
(ASCAP), each radio station has a different play list made up of ASCAP
music catalogue. On the other hand, every patent pool licensee uses the
same combination of patents. For example, if a patent pool is for imple-
menting a standard, a particular combination of patents must be used
to implement the standard. That is, all MPEG LA licensees basically
use same bundle of patents.17
When a bundle of goods such as set of IPs must be used together, i.e.,
goods are complements, there is economic benefit other than reduction
of transaction costs through elimination of double-marginalization,
originally pointed out by Cournot.18 For this reason patent pools offer
a completely different advantage from CCS. Even if there is no ben-
efit from elimination of double-marginalization, the fact that licensees
choose subset of IPs means the marginal constraint does not bind19
and a pool is welfare enhancing. On the other hand, there is no similar
economic efficiency justification for CCS pricing the whole bundle of
IPs as a “blanket license”.

Patent pools
Notable patent pools were already established in the nineteenth century,
such as the sewing machine pool formed in 1856. Today, the most pro�
minent patent pools are formed to implement technological �standards.

16
╇ van Zimmeren, see Chapter 5 of this volume.
17
╇ Horn, A.L., ‘Case 1. The MPEG LA® Licensing Model. What problem does it solve
in biopharma and genetics?, Chapter 2 of this volume.
18
╇ Also discussed by Verbeure, Chapter 1 of this volume.
19
╇ Lerner, J. and J. Tirole, ‘Efficiency of Patent Pools’, 94(3), American Economic Review,
2004, 691–711.
 An economic perspective 357

The Motion Pictures Experts Group Licensing Administration (MPEG

LA)20 and Digital Versatile Disc (DVD) are such examples.21

Example
There are three firms, A, B and C, that each have a patent to implement
a standard. The total number of licenses demanded when total royalty
is r is,
Q = 1 – r. (1)
If there is only one licensor that charges r0, then r = r0. If there are
two licensors charging r1 and r2 respectively, then r = r1 + r2.
There are three possible licensor configurations:
• Patent pool – all three firms form a single pool, there is only one li-
censor.
• Independent licensing – all three firms license independently, three
licensors.
• Firm C is an outsider – firms A and B form a pool but firm C is inde-
pendent, two licensors.
Each licensor sets its royalty ri to maximize own revenue, Qri = (1 − r) × ri.
If there is only one licensor, r = ri, otherwise r > r i. Revenue maximiz-
ing royalty and revenue according to number of licensors is shown in
table 23.1.
Note that total royalty increases with number of licensors. This is
due to double marginalization. When choosing royalty rates separately,
each licensor does not take into account the decline in profit of other
firms from reduction in license demand when it raises its own royalty.
When they choose a royalty rate together as a pool, loss of profit for
all members from raising royalty is taken into account. This phenom-
enon occurs because the patents must be used together (complements).
This observation is the principle behind competition authorities’ posi-
tive views of standard implementation patent pools. A patent pool of
all firms reduces number of licensors to one, achieving lowest possible
total royalty, which is 30 in the example. Total royalty is 45 if the three
firms license independently.
Another important observation is that because of low total royalty,
firms are better off organizing into a single pool. Pool revenue is 900

20
╇ Horn, see Chapter 2 of this volume.
21
╇ Aoki, R. and S.Nagaoka, ‘Coalition Formation for a Consortium Standard through
a Standard Body and a Patent Pool: Theory and Evidence from MPEG2, DVD and
3G’. Institute of Innovation Research Working Paper 2005, WP\#05–01, Institute of
Innovation Research, Hitotsubashi University.
358 Reiko Aoki

Table 23.1 Royalties and revenues with different number of licensors

Regime Patent pool Firm C outsider Independent licensing

No. of licensors 1 2 3
Each licensor royalty 30 20 15
Total royalty 30 40 45
Total licenses 60 20 15
�demanded
Each licensor revenue 900 400 225

which is greater than the total of all three licensees were they to license
independently which will be 675 in the example.

Formation and stability

Standard implementation patent pools consist of complementary pat-
ents, that is, patents that must be used together. In the example, this is
reflected in equation (1): for a given level of total royalty, r, demand for
all patents are the same. There is no trade-off between patents when
royalty rates differ (which would be case if patents were substitutes). For
such a bundle of patents, price of a bundle will be cheaper than the total
price if patents were priced independently, as seen in the example. This
is something that patent owners are keen to take advantage of which
makes forming a pool of complementary patents attractive. In addition
when the patents are for implementing a new standard, reduction of
total royalty rate will help promote adoption of the new standard.
However many pools suffer from instability, that is, some members
leave. This occurs because reduction of licensors (by bundling) means
an independent licensor can charge more. Unless appropriate compen-
sation is given to the patentee by the pool to make it attractive enough
to stay in the pool, a member may leave and license independently.
In the example, focus on firm C’s profit in the three different regimes.
If all three firms are independent, firm C’s profit is 225. If firms A
and B form a pool so that there are only two licensors, then firm C’s
profit is 400. This is more than one third of 900 – what it would get if
it joined the pool and revenue was divided equally. This explains why
some firms leave the pool or refuse to join when others have formed into
one licensing organization. Firm C refusing to join is very unfortunate
for the other two firms which only get 200 each.
In this case, firms A and B should guarantee a bit more than 400, say
410, to induce firm C to join the pool. Even after giving firm C’s 410,
firm A and B can split 900–410â•›=â•›490, which is more than 200 each!
 An economic perspective 359

The incentive to leave and free rider on the patent pool which leads
to ex post instability also contributes to ex ante instability and impedes
�formation of a pool.
Instability of patent pools is well documented. The DVD standard
established by the DVD Consortium made up of ten patent owner firms
in 1995. They agreed that a patent pool should be formed to main-
tain the cost of licensing low in order to promote the new standard. In
1996, Thompson left the consortium and started to license independ-
ently. The nine firms continued efforts to license but Phillips, SONY
and Pioneer expressed dissatisfaction with how the revenue of the
pool would be distributed. In 1997 the three firms left to license their
patents together but separate from the Consortium. The two groups
started licensing separately the following year. As result, it is necessary
to have three separate licenses in order to implement the DVD tech-
nology. However in many cases, by adjusting the payment it is possible
to induce firms to join.22 Distribution of patent pool revenue (licensing
fees) must be designed to prevent members from leaving and licensing
independently. This means distribution according to number of patent
ownership may be inappropriate.
It is also known that heterogeneity contributes to instability.23 That
is, a non-manufacturing firm such as Rambus has a very different
incentive from that of Toshiba whose profit is primarily from manufac-
turing. Distribution of pool revenue should also take this heterogeneity
into account.

Copyright collection societies

There are many successful examples of CCS, including ASCAP
(US), and BELGRAMEX (Belgium), GVL (Germany), Associatione
Nazionale dei Fonografica Italiani (Italy) and Phonographic
Performance Limited (UK). There are also many copyright collec-
tives that collect royalties from photocopy of books and articles, such
as Copyright Clearance Center (US) and Copyright Licensing Agency
(UK), and many others in Europe.24
A CCS issues “blanket licenses” to licensees that charges a fixed fee,
independent of which music is played or which photograph is used or

22
╇ Aoki,R. and S.Nagaoka, ‘The Consortium Standard and Patent Pools’, 55(4), The
Economic Review, 2004, 345–56
23
╇ Aoki and Nagaoka, ‘The Consortium Standard’.
24
╇ Corbet, J., ‘Case 7. The collective management of copyright and neighbouring
rights. An example of a royalty collection clearinghouse’, see Chapter 10 of this
volume.
360 Reiko Aoki

intensity of use. The fixed fee is usually a proportion of licensee’s rev-

enue which is set to reflect licensee’s value of music or photographs.
For instance, music would be more valuable to a radio station than a
restaurant whose main business is serving food. Thus the rates for radio
stations are higher than for restaurants. This pricing policy is rational
because it is very difficult for CCS to know which particular music or
photograph is most valuable to the licensee. Under such circumstance,
it is better not to price the individual IPs separately for it may distort
the choice. Blanket license is designed so that each licensee will choose
whatever combination of IPs will maximize its profit. CCS will take a
fixed proportion that maximized profit. CCS charges the same price
(actually zero) for each IP so it will not distort licensee’s profit maxi-
mizing choice.
CCS distributes license revenue to members according to how much
the member’s music or photograph was used. Intensity of use is obtained
by combination of reporting by major licensees such as major television
and monitoring of other licensees.25

Simple model
The following model is due to Bensen, Kirby and Salop.26 When the size
of intellectual property (IP) rights is N, the value to society of the cata-
logue is V(N). We assume V(N) is increasing concave function of N. Each
licensee would be paying their individual value of the catalogue and the
sum of all the fees should be equal to V(N). Thus, this is CCS’s licensing
revenue. The CCS’s administration cost is C(N)â•›=â•›F + cN, where F is the
fixed cost of administration and c is the cost per IP. Typically c would be
the monitoring cost. The surplus is π(N)â•›=â•›V(N)€– cN – F.
For simplicity we assume one member has one IP right and CCS sur-
plus is divided equally among its N members. Then in order to maximize
per member profit, membership size should be chosen to maximize

�( N ) V ( N ) − cN − F
=
N N

The per member maximizing size, Nm satisfies,

d �( N m ) V ( N m ) − cN m − F
=0 ⇔ V ′( N m ) − c = (2)
dN N m Nm

25
╇ Corbet, see Chapter 10 of this volume.
26
╇ Bensen, Stanley M., Sheila N. Kirby and Steven C. Salop, ‘An Economic Analysis of
Copyright Collectives’, 78 Virginia Law Review, 1992. 383–411.
 An economic perspective 361

The membership size Nm to maximize per member surplus is set so

that marginal surplus equals surplus per member.

�′( N ) = 0 ⇔ V ′( N * ) = c.

The socially optimal membership size is to maximize total surplus,

π(N).
The socially optimal membership size, N*, is set to equate marginal
surplus to marginal cost. Comparing equations (1) and (2), we observe
that membership is kept too small if CCS tries to maximize surplus per
member, Nm < N*.

Formation and stability

One advantage of CCSs is the reduction of transaction cost for enfor-
cing property rights. CCS saves monitoring cost by monitoring all
music or photograph use on behalf of the members, making individual
monitoring by each IP owner unnecessary. However, the economies
of scale effect of monitoring cost is not the only reason why CCSs
do not suffer from instability. First of all, there is no externality that
non-�members can free ride on as in the case of patent pools. Instead
the blanket license practiced by CCS contributes to stability. Because
licensees pay a fixed fee, there is no marginal cost of using more from
the CCS IP catalogue. On the other hand, licensee must pay a sepa�rate
royalty to use a non-member’s IP, making it costly not to be a CCS
member. Thus not only is there incentive to stay, there is an incentive
to join CCS. It is not surprising that CCSs have been stable over time
and memberships have grown.

23.4 Incomplete contract structures

Arrow in his seminal work 27 argued that risk was not the essence of
innovation since this can be contracted away in a perfect capital mar-
ket. The reality is that the capital market is not perfect. Both open
source and CCL address the issue of uncertainty in innovation.
An outcome of innovation is uncertain and not always successful.
Which idea (which may be protected by IP)28 or molecule is most likely
to succeed is often unknown a priori. Which researcher will be most
27
╇ Arrow, K. ‘Economic Welfare and the Allocation of Resources for Inventions’ in
Nelson, R.(ed), The Rate and Directions of Inventive Activity, Princeton, Princeton
University Press, 1962, 635 p.
28
╇���������������������������������������������������������������������������������������An idea may be the subject of an IP right. (Access and) use of an idea differs accord-
ing to the fact whether there is IP on the idea or not. The author is grateful to Geertrui
Van Overwalle for pointing to this very important distinction.
362 Reiko Aoki

effective may also be unknown. In addition to these uncertainties,

there are informational problems. That is, the IP owner may be more
informed than a researcher about quality and likely success of IP or a
molecule. Similarly, a researcher may be better informed about his or
her ability than the IP owner. Furthermore, the IP owner may only
not be able to observe how much talent a researcher has (hidden infor-
mation) but also may not be able to observe how hard she is working
(hidden action).
While some uncertainties are possible to contract away, it is difficult
to write contracts when there are informational asymmetries (hidden
information).29 It is also not easy to induce optimal effort with con-
tracts when effort is not observable (hidden action) and it is usually not
possible to have an efficient outcome. That is, the IP owner will have
difficulty having others conduct or invest in innovation to improve or
develop its IP.
Open source and CCL are functioning as a form of incomplete con-
tracts when there are these uncertainty and informational problems.
The problem is made worse by the dynamic nature of innovation. In
case of software improvements, improvements are cumulative. This
means rents from innovation need to be distributed between genera-
tions and these distribution rules in turn affect incentive to innovate.
As Hope30 argues, it is possible to obtain private returns from open
source material through complementary goods, return from market
positioning etc., meaning there are rents appropriated by each gener-
ation of cumulative innovation with open source.
An important function of ICS is to provide an environment to inno�
vate and to realize value of IP. In this sense, The Alliance Centers of
the Consultative Group on International Agricultural Research, the
CGIAR,31 has aspects that should be included in this group. It main-
tains germplasm from around the world that can be distributed to crop
breeders upon request, a function similar to the Molecular Libraries
Initiative – CCL regime. It provides opportunity to realize value.

23.5 Concluding remarks

We have categorized various clearing mechanisms and contractually
constructed liability according to economic functions. Exchanges

29
╇ Bolton, P. and M. Dewatripont, Contract Theory, Boston, MIT Press, 2005, 724.
30
╇ Hope, see Chapter 12 of this volume.
31
╇ Henson-Apollonio, V., ‘Case 10. The International Treaty on Plant Genetic Resources
for Food and Agriculture: the Standard Material Transfer Agreement as implementa-
tion of a limited compensatory liability regime’, Chapter 18 of this volume.
 An economic perspective 363

reduce transaction costs (search and contracting costs). Any result-

ing contracts are bilateral and IP owners retain ownership. Collective
rights organizations include well-established clearing mechanisms:
copyright collection societies and patent pools. Their main function is
to provide access to a large catalogue of IPs and collect royalties. IPs are
complements in case of patent pools while existing copyright collection
societies offer blanket licenses because relationships among IPs are not
clear a priori.
The last group of clearing mechanisms, the incomplete contract
structures exist to facilitate access to IP and innovation using them. By
definition structures are for IP used for further research, either because
they are very basic as in molecules (contractually constructed liability)
or because knowledge is part of an ongoing cumulative innovation pro-
cess (open source). Open source is already in existence although not
very well understood. Contractually constructed liability is a new con-
cept yet to be put into practice. Both systems are promising and surely
will attract future research interest.
Last but not least, all clearing mechanisms are based on the net-
work effect. There is danger of an equilibrium with very few partici-
pants. Coordination, by public or private or by national or international
entities, is essential for successful formation. The network effect by
itself is very stable, meaning it becomes self-enforcing once an organ-
ization has been established.

R eferences
Aoki, R. and S. Nagaoka, ‘The Consortium Standard and Patent Pools’, 55(4)
The Economic Review, 2004, 345–56
â•… ‘Coalition Formation for a Consortium Standard through a Standard Body
and a Patent Pool: Theory and Evidence from MPEG2, DVD and 3G’.
Institute of Innovation Research Working Paper, 2005, WP\#05–01,
Institute of Innovation Research, Hitotsubashi University.
Aoki, R. and A. Schiff, ‘Promoting Access to Intellectual Property: Patent
Pools, Copyright Collectives and Clearinghouses’, 38 R&D Management,
2008, 118–204.
Arrow, K. ‘Economic Welfare and the Allocation of Resources for Inventions’
in Nelson, R.(ed), The Rate and Directions of Inventive Activity, Princeton,
Princeton University Press, 1962, 635.
Bennett, B. and Boettiger, S., ‘Case 5. The Public Intellectual Property
Resource for Agriculture. A standard license public sector clearinghouse
for agricultural IP’, Chapter 8 of this volume
Bensen, S.â•›M ., Sheila N. Kirby and S.â•›C. Salop, ’An Economic Analysis of
Copyright Collectives’, 78( 3) Virginia Law Review, 1992, 83–411.
364 Reiko Aoki

Bolton, P. and M. Dewatripont, Contract Theory, Boston, MIT Press,

2005,€724.
Corbet, J., ‘Case 7. The collective management of copyright and
neighbouring rights. An example of a royalty collection clearinghouse’,
Chapter 10 of this volume
Edwards, J.â•›L ., ‘Case 3. The Global Biodiversity Information Facility. An
example of an information clearinghouse’, Chapter 6 of this volume
Henson-Apollonio, V., ‘Case 10. The International Treaty on Plant Genetic
Resources for Food and Agriculture: the Standard Material Transfer
Agreement as implementation of a limited compensatory liability regime’,
Chapter 18 of this volume
Hope, J., ‘Open source genetics. Conceptual framework’, Chapter 12 of this
volume
Horn, A.â•›L ., ‘Case 1. The MPEG LA® Licensing Model. What problem does
it solve in biopharma and genetics?’, Chapter 2 of this volume
Lerner, J. and J. Tirole, ‘Efficiency of Patent Pools’, 94(3), American Economic
Review, 2004, 691–711.
Merges, R., ‘Contracting Into Liability Rules: Intellectual Property Rights
and Collective Rights Organizations’, 84 California Law .Review, 1996,
1293–393.
Nguyen, T., ‘Case 6. The Science Commons Material Transfer Agreement
Project. A standard license clearinghouse?’, Chapter 9 of this volume
Rai, A.â•›K ., Reichman, J.â•›H., Uhlir, P.â•›F. and Crossman, C., ‘Pathways across
the valley of death: novel intellectual property strategies for accelerated
drug discovery’, Chapter 17 of this volume
Spence, M., ‘Comment on the conceptual framework for a clearinghouse
mechanism’, Chapter 11 of this volume
Van Overwalle, G., van Zimmeren, E., Verbeure, B. and Matthijs, G.,
‘Models for Facilitating Access to Patents on Genetic Inventions,’ 7
Nature Review Genetics, 2006, 143–8.
van Zimmeren, E., Verbeure, B., Matthijs, G. and Van Overwalle, G., ‘A
Clearinghouse for Diagnostic Testing: the Solution to Ensure Access to
and Use of Patented Genetic Inventions?’, Bulletin of the World Health
Organization, 2006, 352–9
van Zimmeren, E., ‘Clearinghouse mechanisms in genetic diagnostics.
Conceptual framework’, Chapter 5 of this volume
Verbeure, B., ‘Patent pooling for gene-based diagnostic testing. Conceptual
framework’, Chapter 1 of this volume
24 The role of law, institutions and
governance€in facilitating access to the
scientific research commons
A philosopher’s perspective

Tom Dedeurwaerdere*

24.1 Introduction
Innovation in the life sciences depends on how much information is
produced as well as how widely and easily it is shared. As shown by the
contributions in this volume, policies governing the science Â�commons€–
or alternative, more restricted information spaces – determine how
widely and quickly information and research tools are distributed. The
purpose of this chapter is to highlight why the science commons mat-
ters, and to analyse its organization. The concern for the governance
of the science commons has caught the attention of a wide range of
scholars in the mid 1990s, especially in legal scholarship.1 The interest
of these scholars is in the cooperative use of scientific data, information,
materials and research tools that actually are not in the public domain,
and whose licensed use is legally protected by an intellectual property
(IP) regime.2 In its more general meaning however, the “commons”

* The author wishes to express his gratitude to Geertrui Van Overwalle for her con-
structive comments on an earlier draft of this chapter and to the participants of the
June 2006 workshop on “Gene Patents and Clearing Models” in Leuven, Belgium,
and the October 2007 meeting of the World Federation of Culture Collections in
Goslar, Germany.
1
╇ Benkler, Y., ‘Overcoming Agoraphobia: Building the Commons of the Digitally
Networked Environment’, 11(2) Harvard Journal of Law and Technolgy, 287–400;
Reese,€R . A., ‘Reflections on the Intellectual Commons: Two perspectives on Copyright
Duration and Reversion’, 47(4) Stanford Law Review, 1995, 707–47; Lessig,€ L.,
Code and Commons, Keynote Address at the Conference on Media Convergence,
Fordham University Law School (9 February, 1999). Online at www.lessig.org/
content/articles/works/Fordham.pdf (accessed February 2008).
2
╇ Reichman, J. and Uhlir, P.F., ‘A contractually reconstructed research commons for
scientific data in a highly protectionist intellectual property environment’, 66 Law
and Contemporary Problems, 315–440, 2003; David, P.A. and Spence, M., ‘Towards
institutional infrastructures for e-science: the scope of the challenge’, Oxford Internet
Institute, Research Report No. 2, September 2003, 98

365
366 Tom Dedeurwaerdere

designates any resource shared by a group of people that is subject to

problems of underprovision or overconsumption of the shared resource,
independently of its legal nature.3 From this general perspective, the
scientific research commons, which we will call hereafter shortly the
science commons, designates the scientific data, information and mate-
rials which are shared under conditions of non-exclusive use (though
perhaps limited in its extent or use, depending on the collective agree-
ments) within limited or global research communities.4
The main hypothesis of this chapter is that both the formal legal
models and the institutional and governance characteristics of the vari-
ous research and users communities – think of the Bermuda principles
in the human genome case5 or the National Institutes of Health (NIH)
guidelines on the licensing of genomic inventions6 – matter in organiz-
ing the translation of research results into usable knowledge, products
and procedures.
Our analysis will proceed in two steps. First we will focus on one of
the main lessons of this book from the point of view of institutional
analysis: the involvement of the scientific and the user communities
in innovative contractual agreements has proven to be successful in
alleviating some of the collective-action problems that are raised in
ge�nomics research. Second, we will show the necessity of going beyond
a formal legal analysis of the agreements and models. Indeed, the legal
rules interact with the formal and informal institutions which regulate

3
╇ Hess Ch. and Ostrom E., Understanding Knowledge as a commons. From Theory to
Practice, Cambridge (MA), MIT Press, 2007, 3–10.
4
╇ There is some wobble in the term “science commons”. The term the “commons”
has been used extensively in legal scholarship to designate goods in open access (cf.
references in footnote 1). In the same time, “Science Commons” is a specific organ-
ization that has spun out of the Creative Commons movement. Science Commons has
moved from concept to action in the year 2005, with an office and executive director
to carry out its mission of “making it easier for scientists, universities, and indus-
tries to use literature, data, and other scientific intellectual property and to share
their knowledge with others. Science Commons works within current copyright and
patent law to promote legal and technical mechanisms that remove barriers to shar-
ing”. While we endorse their mission, they may not endorse our analysis, and we have
no di�rect connection to the organization, and do not speak for it. As explained above,
we adopt the more general definition that has been adopted at major international
conferences on these issues (the “Conference on the Public Domain”, organized at
Duke University in November 2001 and the “Workshop on Scholarly Communication
as a Commons”, organized at Indiana University in Bloomington, spring 2004) the
results of which have been published in a collective volume at MIT Press (Hess and
Ostrom, Understanding Knowledge as a commons).
5
╇ See www.ornl.gov/sci/techresources/Human_Genome/research/bermuda.shtml for
an overview of the Bermuda principles (last visited 15 October 2007).
6
╇ National Institutes of Health, Best Practices for the Licensing of Genomic Inventions: Final
Notice, Federal Register, Vol. 70 (68), Monday, April 11, 2005.
 A philosopher’s perspective 367

individual behaviour in communities and organizations. This inter-

action can be mutually reinforcing, neutral or antagonistic. Based on
the insights of the literature on institutional analysis, we will analyze the
role of formal and informal institutions in the organization of research
in genomics, and indicate how the interaction between different types
of rules can be addressed.

24.2 The contractually reconstructed public domain in

diagnostic genetic testing
The problem of access to genes as research tools for diagnostic genetic
testing suggests that the theory of the science commons, which focuses
on the public good properties of resources that are essential for scientific
research, may also have some use in the case of applied research, here
in the case of genes as research tools which are used in a broad set of
more specific applications. The discussion of the different legal models
for reconstructing the commons in this volume shows that a variety of
social goals can benefit from a robust scientific commons in genomics:
these include advancing science, improving public health, improving
food security, contributing to understanding and conserving biological
diversity, and contributing to industrial R&D and commercialization.
When Robert Merton wrote about the sociology of science, the cen-
tral task at hand was explaining how a set of social norms and practices
yielded reliable knowledge.7 Our concern here is about a related but dis-
tinct topic – how reliable knowledge can be turned to social benefit and
used in practical applications. The point of connection is science that
falls squarely into what has been called “Pasteur’s Quadrant”, where it
both contributes to insights about how the world works and promises to
make the world a better place through practical application.8 This field
of research in between pure basic research and pure applied research is
especially important in the life sciences, because of the complexity of
biological systems which are characterized by non-linear processes that
are path dependent, can show abrupt change and have unpredictable
dynamics. These features call for knowledge which is context specific
and which can enhance human adaptability and cope with uncertainty
when biological processes unfold in different specific environments,
such as genes being expressed differently in different metabolisms or

7
╇ Merton, R. K., The Sociology of Science. Chicago, University of Chicago Press, 1973.
8
╇ Stokes, D.E., Pasteur’s Quadrant: Basic Science and Technological Innovation. Washington
DC, Brookings Institution Press, 1997.
368 Tom Dedeurwaerdere

organisms co-evolving with complex human managed ecosystems.9

Producing knowledge in this intermediary field of research implies
looking beyond the norms of the scientific communities.10 Indeed, it
necessitates institutions for organizing collective action which cross the
borders between different scientific and user communities.
Collective-action institutions aim to alleviate collective-action prob-
lems. Collective-action problems occur whenever individuals in inter-
dependent situations face choices in which the maximization of short-
term self-interest yields outcomes which leave all participants worse off
than feasible alternatives. These problems are often presented in the
form of so-called “social dilemmas”, where the optimal outcome is con-
trasted with the outcome resulting from the pursuit of individual self-
interest. One subcategory of social dilemmas is a public-good dilemma.
In a public-good dilemma, all those who benefit from the provision
of a public good – such as open access to genetic-sequence informa-
tion, access to crop-genetic resources, or better biosecurity regulation
– find it costly to contribute and would prefer others to pay for the good
instead. If everyone follows the equilibrium strategy, then the good is
not provided or is underprovided. Yet, everyone would be better off if
everyone contributed. In those situations of social dilemmas, collec-
tive-action institutions introduce a certain level of collec�tive constraint,
whether through formal or informal rules, with the aim to produce bet-
ter outcomes. Because the creation of collective-action institutions is
costly, however, it is important to assess the relative costs and benefits
of the different types of formal and informal institutional arrangements

╇����������������������������������������������������������������������������������� Two important examples of these complex dynamics within the field of the life sci-
9

ences are the management of antibiotics resistance in health care and the manage-
ment of pest resistance in agriculture landscapes. In the case of antibiotics, it has been
shown that increased use of antibiotics has an effect on increasing resistance of the
viruses. In the case of agricultural innovation, pest resistance declines �dramatically
after a period of about 5 to 10 years (depending on the crops) due to adaptation of
the ecosystem to the new breeds (Goeschl, T. and Swanson, T., ‘On the economic
limits of technological potential: will industry resolve the resistance problem?, in
Swanson€ T. (ed.), The Economics of Managing Biotechnologies¸ Dordrecht: Kluwer
Academic Publishing, 99–128).
10
╇ The key norms of the scientific communities as analyzed by Robert Merton are the
norms of openness, community, mutual criticism, and fair allocation of credit (Merton,
The Sociology of Science). The norms of the user communities (both public and pri-
vate) can be supportive of these norms or antagonistic (such as in the case of privately
funded research contracts that impose a certain time lag before publication). These
problems have been analysed elsewhere (Rai, A. K., ‘Regulating Scientific Research:
Intellectual Property Rights and the Norms of Science’, 77(1) Northwestern University
Law Review, 1999, 77–152; Reichman and Uhlir, ‘A Contractually Reconstructed
Research Commons’). Here we do not focus on the sociological analysis of the exact
content of these different norms and their changing dynamics, but on the governance
questions of how to bridge different communities with different norms.
 A philosopher’s perspective 369

that can alleviate the collective action problems. In particular, the cre-
ation of a formal legal rule presents itself a new public good dilemma
(a so-called “second-order dilemma”), because, even if all will benefit
from the rule, not everybody has an incentive to contribute to its cre-
ation and maintenance.11
Social dilemmas are found in all aspects of life-sciences research.
This can be illustrated through two major social dilemmas in the
life sciences: the diffusion/innovation dilemma and the exploration/�
exploitation dilemma.12 In the first dilemma, collective action is
required to organize wide and early diffusion of research results, while
recognizing the importance of private property rights for creating indi-
vidual or organizational incentives for innovation. As discussed in this
volume, this first dilemma is at the core of anticommons problems lead-
ing to patent thickets,13 but diffusion problems are also present in cases
where “holdouts”14 maintain unreasonably restrictive licensing prac-
tices. In the second dilemma, collective action is required for exploring
new lines of development and deepening general understanding, espe-
cially when the benefits for the organizations investing in this research
are still uncertain. This problem is clearly at the core of the discussion
on the liability regime by Rai et al. in this volume,15 where the goal
is to create incentives for investing in uncertain downstream product
development.
The lesson to be learned from the models that are analysed in this
volume is the following: granting non-exclusive use rights on intan-
gible assets, in situations where IP is attached to these assets, allows to
address some of the collective action problems related to diffusion of
research results and the organization of exploratory research. A famous
example in the field of life science research is the Cohen-Boyer license
for the patent of Stanford University on DNA replication technology,

11
╇ Public goods can be of different natures: they can be materials or information,
but they can also be institutions and regulations. Indeed, the benefit from well-
�functioning institutions and regulations are non-exclusive and non-rival. So there is
a major incentive to free-ride on others’ effort to create institutions, exposing institu-
tional innovation to classic public-good problems of undersupply.
12
╇ For a more extensive discussion of these dilemmas, see Cook-Deegan, R. and
Dedeurwaerdere, T., ‘The Science Commons in Life Science Research: Structure,
Function and Value of Access to Genetic Diversity’, 188 The International Social
Science Journal, 2006, 309−2.
13
╇�����������������������������������������������������������������������������������Verbeure, B., ‘Patent pooling for gene-based diagnostic testing. Conceptual frame-
work’, Chapter 1 of this volume.
14
╇ Goldstein, J.A., ‘Critical analysis of patent pools’, Chapter 4 of this volume.
15
╇����������������������������������������������������������������������������������� Rai, A.K., Reichman, J.H., Uhlir, P.F. and Crossman, C., ‘Pathways across the val-
ley of death: novel intellectual property strategies for accelerated drug discovery’,
Chapter 17 of this volume.
370 Tom Dedeurwaerdere

creating facilitated access to this technology for academic and non-

commercial research.16 This strategy has been described in the lit-
erature as the creation of a reconstructed commons.17 In general, the
reconstructed commons is established by a set of institutional agree-
ments amongst the right holders and between the right holders and the
users, in order to create a domain of non-exclusive use for intangible
goods with IP rights attached, or on which IP can be claimed18 (see
Figure 24.1). These agreements can define standard contractual tem-
plates, establish general guidelines endorsed by a hierarchical authority
for the use of the rights by the right holders or define a set of infor-
mal rules and practices. The first type, the contractual reconstructed
commons, is established by a group of right holders who decide to use
standard contracts to construct conditions of shared use that emulate
the key features of the public domain.19 However, the use of contract
is only one of the strategies that are used in the institutional design of
the reconstructed commons. As we will argue below, the contractual
rules interact with other formal rules (hierarchies, organizations etc.)
and informal rules (norms, ethical codes etc.), which play a role in pre-
scribing, monitoring and enforcing non-exclusive use. For instance, as

16
╇ Rai A. K. and Eisenberg R. S., ‘Bayh-Dole Reform and the Progress of Biomedicine’,
66 Law and contemporary problems, 2003, 289–314.
17
╇ For the original concept of the reconstructed commons, see David, P.A. and Spence,
M., ‘Towards Institutional Infrastructures for E-Scienceâ•›…’ and Reichman, J. and
Uhlir, P.F., ‘A Contractually Reconstructed Research Commonsâ•›…’. For a dis-
cussion of the applications of this concept in genomics see Cook-Deegan, R. and
Dedeurwaerdere, T., ‘The Science Commons in Life Science Research’.
18
╇ Clear examples of a reconstructed commons discussed in this volume are the open-
access licensing models for software (Hope, J., ‘Open source genetics. Conceptual
framework’, Chapter 12 of this volume) and the proposed liability rules for small
molecule collections. As suggested in Figure 24.1, patent pools are more of a hybrid
nature. They share some of the characteristics of the reconstructed commons (non-
exclusive use within the pool) and some characteristics of the exclusive use domain
(restricted to a limited group).
19
╇ In particular, the access to these shared resources by cooperating parties is rendered
open (though perhaps limited in its extent or use) under minimal transactions cost
conditions. For tangible goods, this is reflected for example in the concept of a “hand-
ling fee”, which parties sometimes have to pay to access the resources, but which
only includes the incremental and supplementary cost that the provider incurs by the
access and distribution transaction, not the real cost the provider has for producing
and maintaining the biological resource, which often is 10 to 20 times higher (for
example, in the case of microbials, Baker, D., ‘Microbial Diversity and Pharmaceutical
Industry Culture Collections’, in M. M. Watanabe, K. Suzuki and T.€ Seki (eds.),
Innovative Roles of Biological Resources Centres, Tsukuba: World Federation for Culture
Collections, 2004, 435–8). For intangibles, this can include for example a partici-
pation in the administrative costs incurred for making a website publicly available.
However, there is no uniform use of handling or administrative fees in case of public
goods and the issue when it is appropriate to ask a fee is an issue of debate.
 A philosopher’s perspective 371

Intangible goods with IPR (or on which IPR can be claimed)

IPR with Liability,

patent pool, etc. open-access
exclusive
license, etc. Partially licensing, etc.
restricted zone

Non-exclusive use:
Exclusive use Reconstructed commons

Figure 24.1 Domain of the reconstructed commons: domain of non-

�exclusive use for intangible goods with intellectual property rights.
Patent pools share some of the characteristics of the reconstructed
commons (non-exclusive use within the pool) and the exclusive use
domain (restricted to a limited group).20

has been developed in the second part of this volume, even in markets 20

well served by the profit motive, a formal organization such as an infor-

mation clearinghouse can in some circumstances improve efficiency of
the reconstructed commons, for example, when many disparate firms
can draw on a common clearinghouse of technological and biological
data, rather than having to construct the same information firm by firm
(resulting in substantial duplication costs).21

24.3 The role of collective-action institutions in

facilitating€access
The building of the science commons is a social process where both
formal and informal institutions constrain the options available to the
individual scientist and health practitioner. In the context of facilitating

20
╇��������������������������������������������������������������������������������The author wishes to thank Geertrui Van Overwalle who suggested this represen-
tation. This figure differentiates between different intangible goods, based on the
effective use rights that are granted by the rights holders, and not so much on the
difference between the legal entitlements.
21
╇ A clearinghouse is essentially an information sharing device. From an institutional
analysis point of view, it contributes to the reduction of transaction costs and facili-
tates the enforcement of the formal and informal rules are adopted. As such it is not
linked to any one specific ownership regime: it can be part of the reconstructed com-
mons (as in the case of the SNP consortium), the exclusive ownership regime (as in
the case of patent clearinghouses), or be a hybrid of both (as in the model of the Public
Intellectual Property Resource for Agriculture (PIPRA) clearinghouse). For a discus-
sion of these examples, see van Zimmeren, E., ‘Clearinghouse Mechanisms in genetic
diagnostics. Conceptual framework’, Chapter 5 of this volume.
372 Tom Dedeurwaerdere

access to genetic diagnostic testing, understanding this process is

important for different reasons. First, it is important to know if the for-
mal legal rules of patent legislation per se or restrictive ownership rights
per se are the main factors impeding access, or if we are just speaking of
bad patents, for instance due to organizational problems in the imple-
mentation. Second, it might be that other formal non-legal constraints
within organizations, such as the pressure to publish, competition for
research grants and secrecy of research results in public–private part-
nerships, play a more important role in the explanation of the adop-
tion of exclusive or non-exclusive use strategies. Third, in the cases
where patents could become a problem for access to research tools, it
remains to be seen if the solution is to rely on formal standard con-
tractual agreements, such as the recourse to dual-licensing policies in
standardized contracts, or formal rules in organizational hierarchies
such as in the clearinghouse models. Moreover, in some cases it might
also be interesting to consider the contribution of informal institutions,
which are enforced through social norms such as reputation and social
recognition, such as informal guidelines or ethical codes, which define
common principles for the use of the formal rights in matters of general
interest.
Analyzing the complex relationships between law and institutions is
of course beyond the scope of this chapter. For that reason, I will limit
myself here to some examples of cases where non-legal constraints in
organizations and informal norms have played a complementary role to
the use of contractual agreements in facilitating access to information
and research tools in the life sciences. In doing this I will adopt the def-
inition now generally used, both in economics and in political science,
of institutions as the “rules of the game”, which constrain the behaviour
of the actors.22 The interaction between law and institutions as rules of
the game has been studied mainly by two bodies of research:23 the first
within “Law and Norms”, initiated by the seminal work of Ellickson, 24
and the second within institutional economics, especially related to
Elinor Ostrom’s work on self-organized institutional arrangements in

22
╇ Ostrom E., Understanding Institutional Diversity, Princeton, Princeton University
Press, 2005, 151; 166.
23
╇ Both the research tradition from institutional economics and law and norms theory
draw mainly on an economic vocabulary, based on notions from game theory and
transaction cost economics. Because our interest here lies in one of the key problems
that is addressed in this literature, which is the alleviation of social dilemmas and the
understanding of the effect of different types of rules on cooperative behaviour, we
have also adopted here this vocabulary.
24
╇ Ellickson, R. C., Order Without Law: How Neighbours Settle Disputes, Cambridge
(MA), Harvard University Press, 1991a.
 A philosopher’s perspective 373

the governance of the commons25 and Oliver Williamson’s work on the

role of organizational hierarchies as being complementary both to the
market and the state.26 Because of the different origin of these research
traditions, the first from within legal theory and the second from
within economics, the definition of the different types of institutions
tends to be very different from one author to another. For the sake of
clarity, we will adopt here a simple set of categories.27 We distinguish
between formal rules (legal rules, institutional policies in organizations
and contracts), and informal rules (community norms, customs and
intrinsic values). Formal rules are prescriptions that are imposed and
enforced in a formal, organized manner, by some members of society,
such as the state, the president of a university or parties in a contract.28
Informal rules are prescriptions that are followed because of the exist-
ence of certain norms, without any formal agreement on the sanctions
to be applied, such as moral preferences or social identity. Within for-
mal rules, we make a distinction between institutions where the sanc-
tion for violating the rule is determined by national or transnational
state actors (formal legal rules) and institutions where the sanctions are
determined by other recognized authorities (formal institutional pol-
icies and contracts). This gives us a set of four basic categories for the
discussion of different types of collective-action institutions:
1.╇ Formal rules: prescriptions that are imposed and enforced in a for-
mal, organized manner, by some members of society (the recognized
authorities)
a. Formal legal rules: the recognized authority = the state / the
�government / the federation / formal multilateral agreement

25
╇ Ostrom, E., Governing the Commons. The Evolution of Institutions for Collective Action,
Cambridge, Cambridge University Press, 1990.
26
╇ Willamson, O., The Mechanisms of Governance, Oxford, Oxford University Press, 1996.
27
╇ Our discussion is based in particular on Aoki M., ‘Endogenizing Institutions and
Institutional Changes’, 3(1) Journal of Institutional Economics, 2007, 1–31. The advan-
tage of Aoki’s approach is to go beyond the tendency to build a hierarchy of different
types of rules, and instead focus on the complementary or antagonistic interaction
between different domains of formal or informal rule-like behavior. This approach is
also adopted for example in Rai A., ‘Regulating Scientific Research …’.
28
╇ The category of formal rules overlaps with the standard definition of the notion of
a rule in institutional economics (Ostrom, Understanding Institutional Diversity, 150–
151). In this context, Crawford and Ostrom develop a more detailed definition of
the difference between formal rules, compared to informal rules (the latter being
designated as norms by Crawford and Ostrom). Formal rules are defined by an insti-
tutional statement that assigns an explicit sanction to detected noncompliance with
the rule and which must meet three qualifications: (1) a collective decision must have
been made in a relevant collective-choice arena to determine the sanction; (2) the
collective decision identifies and/or establishes a sanctioning authority; (3) and pre-
scribes monitoring responsibilities (150–1).
374 Tom Dedeurwaerdere

b. Formal institutional policies in organizations: the recognized

�authority = authorized person or persons of a collective entity
other than the state (which can be a private organization or a
governmental bureaucracy)
c. Formal rules of contracts: the recognized authority = the con-
tracting parties (in bilateral contracting) or an independent
third party (contracting amongst a large number of (mutually
unknown) players)
2.╇ Informal rules: interaction with norms of communities and
individuals.
�

In the “Law and Norms” literature, informal rules are often designated
as social norms or informal norms, 29 while formal institutional policies
are often designated as formal norms30 or private rule making.31 Hence,
in what follows, we will use these different notions as synonyms.32
What is common to these different research traditions is the recog-
nition of the complementarities between legal and non-legal sanctions.
Indeed, as stressed for instance by Cooter,33 the complexity of modern
economies is so great that centralized law creation cannot effectively
cope with the need to achieve normative regulation among commu-
nities of individuals who repeatedly face collective-action problems.
From the point of view of institutional analysis, it is the combination of
formal legal rules, formal institutional policies, contracts and informal
rules that produces effective common-access regimes. In the remaining
text, we will focus on some examples, where institutional policies and
informal rules played an important complementary role in facilitating
access to biological resources on which IP has been claimed or can be
claimed.
A clear case where common norms and institutional policies play a
role in creating a de facto open-access regime in genetic and biological
resources are the common guidelines adopted in 2003 by the organi-
zations that are member of the Consultative Group for International

29
╇ Posner, E. (ed.), Social Norms, Nonlegal Sanctions, and the Law, Edward Elgard, 2007.
30
╇ Rai, A., Regulating Scientific Research.
31
╇ Bernstein, L., ‘Private Commercial Law in the Cotton Industry: Creating cooperation
through rules, norms and institutions’, 99 Michigan Law Review, 2001, 1724–1790.
32
╇�����������������������������������������������������������������������������������Similar notions to the one’s developed here have also been developed in other lit-
eratures that analyze the role of different forms of non-legal regulation, such as in
the literature on self-regulation or on soft versus hard law. For an overview of the
latter in the context of the debate on patents in the life sciences, see for example Van
Overwalle, G., Study on the Patenting of Inventions Related to Human Stem Cell Research,
European Communities, Luxembourg, 2002, 218.
33
╇ Cooter, R. D., ‘Structural adjudication and the New Law Merchant: A Model of
Decentralized Law’, 14 International Review of Law and Economics, 1994, 215–31.
 A philosopher’s perspective 375

Agricultural Research (CGIAR). This case is also relevant because

these guidelines (and a fortiori earlier versions of them) were adopted
before the International Treaty on Plant Genetic Resources for Food
and Agriculture (ITPRGFA) came into existence.34 There is some over-
lap between these two examples, as the objectives of the Treaty are to
create a facilitated access regime for plant genetic resources. However,
the application of the Treaty is limited to the resources that are essen-
tial to preserving world food security, and which are listed in annex 1
to the Treaty.
Historically, the CGIAR has played a leading role in promoting open
access to biological resources through the organization of a network of
specialised ex-situ conservation facilities throughout the world. As the
2003 CGIAR policy guidelines state:
The germplasm 35 designated by the Centers is held in trust for the world com-
munity in accordance with the agreements signed with the FAOâ•›…â•›Based on the
conviction that their research will continue to be supported by public funds,
the Centers regard the results of their work as international public goods.
Hence full disclosure of research results and products in the public domain is
the preferred strategy for preventing misappropriation by others.36

The CGIAR IP policy clearly reflects this open-access strategy.37 The

implementation of these formal policies is facilitated by the existence
of a set of common norms which prescribe the sharing of resources
and information amongst the CGIAR centers. These commons norms
depend on the existence of relations of reciprocity that enforce the nor-
mative behaviour of the researchers in the Centers and other public and
private partners worldwide. For instance, a quantitative analysis of fif-
teen years of exchange of maize germplasm between the International

34
╇ Henson-Apollonio, V., ‘Case 10. The International Treaty on Plant Genetic
Resources for Food and Agriculture: the Standard Material Transfer Agreement
as Â�implementation of a limited compensatory liability regime’, Chapter 18 of this
volume.
35
╇ Technically “germplasm” refers to seeds, plants or plant parts that are useful in crop
breeding, research or conservation because of their genetic attributes.
36
╇ CGIAR, Booklet of CGIAR Centre Policy Instruments, Guidelines and Statements on
Genetic Resources, Biotechnology and Intellectual Property Rights, Version II, produced by
the System-wide Genetic Resources Programme (SGRP) with the CGIAR Genetic
Resources Policy Committee, Rome, July 2003, 37
37
╇��������������������������������������������������������������������������������������� It states that “the Centres will not assert intellectual property control over deriva-
tives except in those rare cases when this is needed to facilitate technology transfer
or otherwise protect the interests of developing nations” and “In the event that a
Centre secures financial returns as a result of the commercialisation by others of its
protected property, appropriate means will be used to ensure that such funds are used
for furthering the mandate of the Centre and the objectives of the CGIAR” (CGIAR,
Booklet of CGIAR Centre Policy Instruments, 31−2).
376 Tom Dedeurwaerdere

Maize and Wheat Improvement Center (CIMMYT) in Mexico and

fifteen other developing countries shows that the recipient countries
received four times as many specimens as they contributed to the inter-
national CGIAR repository.38 Hence, being part of the open access net-
work for germplasm produces a network externality: researchers pro-
vide access to their own limited resources and information and in turn
they gain access to resources and information from all other member
organizations. Moreover, this reciprocity also plays a role in the rela-
tions between the ex-situ centers and their direct and indirect commer-
cial partners. Indeed, it has been shown that an estimated 75% of all
seeds sold by private companies in Latin America in 1996 contained
CIMMYT-derived germplasm.39
The implementation of the International ITPRGFA in the CGIAR
centers could bring less openness to the system. Indeed, the ITPRGFA
specifies that IPR will not be asserted on the unmodified material as
received from other parties in the system, but allows IPR to be asserted
on the modified material, if applicable. This would extend the use of
IPR in the CGIAR centers beyond the policy specified in the guide-
lines, which prescribed an open-access strategy also for the modified
materials as the general rule.40
A second example illustrates the role of institutional policies and
common norms in facilitating open access to genomics informa-
tion. The International Nucleotide Sequence Database Collaboration
(INSDC), more commonly known as “GenBank” (which is the name
of the US access point), provides open on-line access to the major
sequence information that is referred to in the published literature, both
for patented and non-patented material.41 The DNA sequence data in

38
╇�����������������������������������������������������������������������������������Fowler C., Smale M., and Gaiji S., ‘Unequal exchange? Recent transfers of agricul-
tural resources and their implications for developing countries’, 19 Development Policy
Review, 2001, 181−204.
39
╇ Ibid., 194.
40
╇ The liability provisions of the treaty are part of the formal legal rules codified in
international law. Because the CGIAR centres have officially joined the treaty, these
provisions override the provisions of the policy guidelines, as far as they have the same
subject matter (that means, in any case for annex 1 material that is held in CGIAR
centres). This situation is different from the one described in Rai, Reichman, Uhlir
and Crossman, where the liability rules are not part of codified or formal legal regime,
but are part of the proposed institutional policy and contractual agreements within
the multiple-firm partnership (the so-called framework agreement, Rai, Reichman,
Uhlir and Crossman, ‘Pathways Across the Valley of Death’, 80).
41
╇ GenBank is publicly accessible through the DNA DataBase of Japan (www.ddbj.nig.
ac.jp/Welcome.html), European Molecular Biology Laboratory Nucleotide Sequence
Database (www.ebi.ac.uk/embl/index.html) and US National Centre for Biotechnology
Information GenBank (www.ncbi.nlm.nih.gov) portals. These are three mirror sites,
situated in Japan, the EU and the USA, respectively, that exchange and update new
 A philosopher’s perspective 377

the INSDC databases were collected primarily by a trio of teams in

the United States, Europe and Japan, which shared data among them-
selves. Creating and coordinating these databases was a major strug-
gle. In 1996, the Wellcome Trust sponsored a Bermuda meeting of the
major sequencing centers throughout the world. A set of “Bermuda
Principles” emerged from the meeting, mandating public disclosure
of DNA sequence data. The Bermuda principles confer prior right of
publication on the scientist who first deposits the information on the
gene sequence in the INSDC databases or any alternative recognized
�international e-�repository. The provision of gene sequences to this
international open-access infrastructure is thus assured through a set
of institutional rules directly related to the organization of the scientific
publication markets in the life sciences. As such the INSCD databases
function de facto as an information clearinghouse for gene sequence
information, both of non-patented and patented material.
In some cases, purely informal norms without institutional policies
can also play a role in creating an open-access environment for bio-
logical material. Recourse to informal rules in facilitating access can be
motivated by various factors. Well-studied cases are situations where
communitarian mechanisms based on norms can easily be enforced
through mechanisms of face-to-face communication,42 or those where it
is rewarding to invest time and money in building a good reputation and
extended confidence.43 This is true for the exchange of microbiological
material between scientists working in the culture collections that are
member of the World Federation of Culture Collections (WFCC). In
principle, the scientists working in these culture collections use con-
tracts, called material transfer agreements (MTAs), when exchanging
biological material between themselves or with third parties. These
contracts specify whether the material can be further distributed by the
recipient and, in many countries, require negotiations on access and
benefit sharing before they can be used for the development of com-
mercial applications. In those cases, granting IPR to modified material
is conditioned by a negotiation with the provider countries (so-called
countries of legal provenance).
However, a recent survey amongst WFCC members showed that the
scientists only explicitly used MTAs in 40% of the cases when they

information on the sequences every night. The information on DNA sequences on the
three sites is thus the same, but each of them also offers specific services.
42
╇ Ostrom E., Governing the Commons.
43
╇ Rai, A. K., ‘Regulating scientific research …’.
378 Tom Dedeurwaerdere

exchanged resources.44 They usually shared the materials in an infor-

mal way. This practice is based upon a sense of reciprocity between the
scientists, who do not want to impose any restrictive conditions upon
each other.45 However, this does not mean that the informal sharing
practice is not based upon well-established rules. On the contrary, it
depends on a common research ethic based on concern for quality in
the management and curation of the material and a sense of fairness in
the exchange.46 The real challenge for this regime of facilitated access
does not come from increasing commercial use of the material and the
importance of patents, but from the erosion of the research ethic due to
increasing competition amongst scientists for publication and access to
project funding.47

24.4 Conclusion: adaptive governance for facilitated access

In this chapter, I have introduced some concepts from contemporary
research into institutional analysis and showed their relevance to the
analysis of the structure of the scientific research commons in the field
of genomics. I have illustrated how the successful examples of facili-
tating access that are discussed in this volume can be understood as
the result of a combination of formal legal rules, formal institutional
policies, contracts and informal rules such as guidelines or ethical
norms. Due to the diversity of the institutional rules that have been
implemented for building the scientific research commons, it is clearly
impossible for the analyst to make a complete analysis of all the possible
combinations of rules. Therefore, efforts at institutional design have to
be understood as policy experiments based on the partial analysis of
specific problems in the context of an available set of rules. Theory and
empirical evidence both play an important role in enhancing the prob-
ability of selecting rules that will lead to better outcomes. But every
institutional creation will remain a situated experiment that has to be
evaluated and adapted over time.

44
╇ Stromberg, P., Pascual, U., and Dedeurwaerdere, T., ‘Information sharing among
culture collections’, unpublished survey report, 2 November 2006.
45
╇ This is confirmed by the analysis of MTAs in Nguyen, T., ‘Case 6. The Science
Commons Material Transfer Agreement Project. A standard license clearinghouse?’,
Chapter 9 of this volume.
46
╇��������������������������������������������������������������������������������Dagmar Fritze, President of the European Culture Collections Organisation, per-
sonal communication, 11 October 2007.
47
╇�������������������������������������������������������������������������������������������For example it is current practice for a researcher to ask that a deposited strain of bio-
logical material be kept secret until his or her publication on that strain is published.
This delay in allowing open access to the strain is often informally agreed, and can
mean a delay of months or even years.
 A philosopher’s perspective 379

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Part VI

Summary and concluding analysis

25 Of thickets, blocks and gaps
Designing tools to resolve obstacles in the gene
patents landscape

Geertrui Van Overwalle*

25.1 Introduction
Human genes have been the subject of patent protection for quite some
time. It has become common practice to grant patents for genes isolated
from the human body, meeting the conditions of novelty, inventive step
and industrial applicability.1 Even though the initial wave of criticism
against human gene patents has quieted down, the controversy lingers
on as the current patent landscape for human genomic science gives rise
to new concerns.
Objections have especially been raised with regard to the exploitation
and licensing of gene patents. Mixing metaphors, thoughtful observers
are increasingly expressing concerns that the exponential growth of
patents claiming human DNA sequences may lead to a ‘patent thicket’ 2
or even a ‘patent tsunami’.3 It is feared that an abundance of patents will
lead to royalty stacking and ultimately frustrate the use of technology,
leading to a ‘tragedy of the anticommons’4 in upstream research. An
anticommons effect may not only arise from the emergence of patent

*
╇ The author wishes to express her gratitude to Göran Hermerén, Esther van Zimmeren
and Birgit Verbeure for their constructive comments on an earlier draft of this chapter,
and Nele Berthels and Isabelle Huys for helpful discussions. The author also gratefully
acknowledges the support of the Vancraesbeeck Fund.
1
╇���������������������������������������������������������������������������������������� For the purpose of the present paper, the terms ‘inventive step’ and ‘capable of indus-
trial application’ may be deemed to be synonymous with the terms ‘non-obvious’ and
‘useful’.
2
╇ Shapiro, C., ‘Navigating the Patent Thicket: Cross Licenses, Patent Pools and
Standard Setting’ in E. Jaffe et al. (eds.), 1 Innovation Policy and the Economy, MIT
Press, 2001, 119–50 (also available at http://haas.berkeley.edu/wshapiro/thicket.pdf).
3
╇ Warcoin, J., ‘â•›“Patent tsunami” in the field of genetic diagnostics. A patent Â�practitioner’s
perspective’, Chapter 21 of this volume.
4
╇ Heller, M.A. and Eisenberg, R.S., ‘Can Patents Deter Innovation? The Anticommons
in Biomedical Research’, 280 Science, 1998, 698–701. Also see Depoorter, B. and
Vanneste, S., ‘Putting Humpty Dumpty Back Together: Experimental Evidence of
Anticommons Tragedies’, 3 Journal of Law, Economics & Policy, 1–25.

383
384 Geertrui Van Overwalle

thickets, but also from ‘blocking patents’. Concerns have equally been
expressed with regard to downstream research in the genetic field. New
inventions might not find their way into products and a ‘translational
gap’ might widen to form a ‘valley of death’.
The authors in the present collection have reflected on the impact of
gene patents and have explored various measures to deal with possible
hindering effects, each in their own way and from their own, theoretical
or practical, experience. Their papers form the very basis of this book.
The present contribution recapitulates their major findings, takes a
fresh look at the alleged problems and adds a new dimension by testing
the suggested solutions against a set of goals and pre-assumptions.
Section 25.2 revisits the problems observed in the current patent
landscape. It adds depth, shade and nuance to the metaphors, collects
empirical evidence to document their appearance, and describes their
(alleged) impact. In an attempt to capture the deeper root of the prob-
lems, it then examines them against the rationale and the objectives of
patent law theory. Section 25.3 articulates the central question resulting
from this analysis. In light of the alleged negative impact of patents in
genetics, what measures should be contemplated to facilitate access to
and use of gene patents and – ultimately – safeguard access to health
care? This central question is made more explicit and exacting by refin-
ing the goals to be achieved and by introducing a series of assumptions.
It is argued that if the common goals are (a) to maintain the current
patent system, meant to serve as a (positive) incentive for the produc-
tion of drugs and therapies important in health care, and (b) to remedy
some of its (hindering) effects in the field of genetics and in diagnos-
tics in particular (c) within a reasonable period of time, designing tools
which optimize access to and use of a multitude of (blocking) patents
may well be considered the most adequate remedy. Expediting access
and use of genetic inventions may well be best served by the design of
(1) contractual, collaborative models (2) which are based on the pre-ex-
istence of IP rights, (3) which are economically viable and commercially
sustainable without overriding social motives, (4) thus restoring trust
in the patent system and offering an alternative for ignoring the patent
norm. Section 25.4 then takes stock of the various collaborative models
which have been suggested to remedy the hindering effects patents may
have: patent pools, clearinghouses, open source models and liability
regimes. It describes characteristics, benefits and disadvantages, points
to working examples and explores the potential for translation to the
genetic field. Section 25.5 finally tests the various measures against the
starting goals, the various postulated assumptions and the findings of
the authors. Section 25.6 concludes the analysis.
 Of thickets, blocks and gaps 385

Let us now turn to the next section and see how the contributors to
the present book have couched current impasses in the gene patents
landscape. And let us explore how these obstacles can be explained
through the lens of the limits-of-the-law theory and the institutional
analysis’ literature, both focusing on the objectives of patent law.

25.2 Framing the problem

Overlooking current trends in the patent landscape for human genomic
science, obstacles and impasses can be witnessed ranging from patent
thickets, over blocking patents to translational gaps. An examination
of the commonly used metaphors in more depth suggests that the phe-
nomena cannot be defined that easily and that some nuance needs to
be added to the debate. However, testing the alleged concerns against
empirical data indicates that the reported phenomena are real and
may affect health care. Patent thickets and blocking patents may hin-
der the supply of diagnostic testing services or lead to the development
of suboptimal diagnostic tools,5 and translational gaps may diminish
the development of new drugs and treatments, all to the detriment of
patients.

Obstacles in the patent landscape

Patent thickets
Although the term ‘patent thicket’ has been widely used over the last
years, its exact meaning and scope is still not clear. In his path-breaking
article ‘Contracting into Liability Rules: Intellectual Property Rights
and Collective Rights Organizations’, Merges defines an intellectual
property thicket as “a tangled, twisted mass of intellectual property
rights, which criss-cross the established walkways of commerce” and
where progress requires “numerous contracts with multiple, independ-
ent right holders”.6 In turn Shapiro speaks of “a dense web of overlapping

5
╇ Cf. European Society of Human Genetics, ‘Patenting and Licensing in Genetic
Testing. Recommendations of the European Society of Human Genetics’, 16 Eur J
Hum Genet, 2008, 405–11.
6
╇ Merges, R.P., ‘Contracting Into Liability Rules: Intellectual Property Rights and
Collective Rights Organizations’, 84 Calif. Law Rev., 1996, 1293–393. Merges already
introduced the ‘thickets’ metaphor in this article: “Intellectual property experts,
especially scholars, have responded to this burgeoning thicket of rightsâ•›…” (1386) and
“This Article is aimed at providing conceptual guidance for those who need to tra-
verse the new thicket of intellectual property rights. Each vine, each plant, standing
in one’s path represents a distinct IPR owned by an individual. To pass through, one
needs a license from each owner. Where a single right blocks the path, this is easy: a
386 Geertrui Van Overwalle

�
intellectual property rights that a company must hack its way through
in order to actually commercialize new technology”.7 Carefully reading
these definitions suggests that a patent thicket is likely to emerge when
a multitude of patents is held by multiple patent owners. Verbeure applies
this approach where she refers to “the existence of multiple patents held
by multiple patent owners”8 and argues that “a patent thicket occurs
when multiple patents cover the same application or technology”.9 In the
same sense, Horn states that “Where standards and other technology
platforms consist of many patents owned by many patent owners, the
number of licences required of users may be too costly and inefficient
for users to negotiate. This is often referred to as a patent thicket.”10
Ullrich argues that when searching for proper models for solving a
problem of patent abundance, the basic assumption is “that the field is
crowded by a large number of patents, with ownership being dispersed
among many patentees, so that it becomes impossible for anyone to
work naturally coherent pieces of the technology without first obtaining
consent by many other patentees”.11 Although most definitions suggest
the presence of a large number of patents, it may very well be that in a
certain field of technology a relatively small number of scattered patents
(and the related transaction and royalty costs) leads second comers to
decide not to engage in related research or to enter the market.
The definition of Merges and Shapiro does not clarify whether a
patent thicket is present when the patents are numerous, or whether
a thicket only appears when the many patents at stake are also essen-
tial. Horn suggests that a patent thicket is really present if there is a
“critical mass of essential patent holders with a critical mass of essen-
tial patents”.12 Goldstein equally argues that “If multiple patent owners
hold patents over different mutational correlations, and all of them are

╇single licensing contract does the trick. Today, however, business people more often
than not encounter a tangled, twisted mass of IPRs, which criss-cross the established
walkways of commerce. Progress along this path does not come cheaply: rather, it
requires numerous contracts with multiple, independent right holders” (1295).
7
╇ Shapiro, ‘Navigating the Patent Thicket’, 2001.
8
╇����������������������������������������������������������������������������������� Verbeure, B., ‘Patent pooling for gene-based diagnostic testing. Conceptual frame-
work’, see Chapter 1 of this volume.
9
╇ Verbeure, see Chapter 1 of this volume.
10
╇ Horn, A.L., ‘Case 1. The MPEG LA® Licensing Model. What problem does it solve
in biopharma and genetics’, Chapter 2 of this volume.
11
╇������������������������������������������������������������������������������Ullrich, H., ‘Gene patents and clearing models. Some comments from a competi-
tion law perspective’, Chapter 22 of this volume. Ullrich subtly adds, however, that
the patent thicket is more a matter of the number and of the strategic positioning of
patents than of the number of patentees.
12
╇ Horn, see Chapter 2 of this volume.
 Of thickets, blocks and gaps 387

necessary for a successful test, then a thicket may appear”.13 In the

line of Horn and Goldstein, the present volume takes the view that a
‘patent thicket’ refers to a multitude of essential, ‘blocking’14 patents
which are held by a multitude of patent owners. A patent thicket is likely
to emerge when the patent ownership of a number of essential patents
is highly fragmented.

Recent empirical data does not confirm the concern for the emer-
gence of a wide patent thicket in genetics at present.15 However, several
of the surveys clearly point to possible problems in the field of diagnostic
testing.16 A genetic diagnostic test is a test aiming at detecting patho-
genic mutations in genes responsible for inherited and acquired genetic
disorders.17 Conversely, a genetic diagnostic method encompasses any
method or technology to detect a link or association between a dis-
ease (e.g. breast and/or ovarian cancer) and a specific (defect in a) gene
(e.g. a mutation in the BRCA1 gene).18 Genetic tests are an important

13
╇ Goldstein, J.A., ‘Critical analysis of patent pools’, Chapter 4 of this volume.
14
╇ Infra, p. 389.
15
╇ Most empirical studies focus on the issuance of human gene patents by patent author-
ities. See Hopkins, M.M., Mahdi, S., Patel, P. and Thomas, S., ‘DNA Patenting: The
End of an Era?’, 25 Nature Biotechnology, 2007, 185–7; Hopkins, M.M., Mahdi,€S.,
Patel, P. and Thomas, S., The Patenting of Human DNA: Global Trends in Public and
Private Sector Activity (A Report for the European Commission – PATGEN Project –
6th FP-2003- LifeSciHealth-II), Brighton, Science and Technology Policy Research
(SPRU) – University of Sussex, 2006, 14 (available at: www.sussex.ac.uk/spru/docu-
ments/patgen_finalreport.pdf); Jensen, K. and Murray, F., ‘Intellectual Property
Landscape of the Human Genome’, 310 Science, 2005, 239–240; National Research
Council of the National Academies (Committee on intellectual Property Rights in
Genomic and Protein Research and Innovation), Reaping the Benefits of Genomic
and Proteomic Research: Intellectual Property Rights, Innovation, and Public Health,
Washington, National Academies Press, 2005, 161; Verbeure, B., Matthijs,€G. and
Van Overwalle, G., ‘Analysing DNA patents in relation with diagnostic genetic test-
ing’, 14 European Journal of Human Genetics (EJHG), vol. 1, January 2006, 26–33;
Walsh, J.P., Cho, C. and Cohen, W. M., Patents, Material Transfers and Access to
Research Inputs in Biomedical Research (Final Report to the National Academy of
Sciences Committee [on] Intellectual Property Rights in Genomic and Protein-
Related Research Inventions), Washington, National Academies Press, 2005, 172.
Few empirical studies focus on the set of gene patents that have been asserted in court
to assess the actual restrictive effect of patents. See Holman, C.M., ‘The Impact of
Human Gene Patents on Innovation and Access: A Survey of Human Gene Patent
Litigation’, 76 University of Missouri-Kansas City Law Review, 2007, 295–362 (also
available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1090562).
16
╇ See references in previous footnote. Also see Caulfield, T., Cook-Deegan, R.M.,
Kieff, F.S. and Walsh, J.P., ‘Evidence and Anecdotes: An Analysis of Human Gene
Patenting Controversies’, 24 Nature Biotechnology, 2006, (1091), 1092.
17
╇ Matthijs, G. and Van Ommen, G.-J., ‘Gene patents: from discovery to invention. A
geneticist’s view’, see Chapter 20 of this volume.
18
╇ Matthijs and Van Ommen, see Chapter 20 of this volume.
388 Geertrui Van Overwalle

�
component of health care services, as they provide a way to establish
�difficult diagnoses and to detect persons at risk, before expressing the
disease. Testing is also useful in planning clinical interventions that
may benefit the concerned individuals, by attenuating or even effi-
ciently treating their disease.
The precarious assessment that the diagnostic sector is more prone
to patent thickets, may be refined on the basis of a twofold distinc-
tion: a distinction between technology-specific and diagnosis-�specific
patents,19 on the one hand, and a distinction between vertically and
horizontally oriented thickets, on the other hand.20 Technology-specific
patents encompass general molecular biological technologies such
as amplification, labelling or detection of nucleic acid fragments.
The technology used can be the same for different diagnostic tests.
Conversely, different technologies may be used for a particular diag-
nostic test.21 Diagnosis-specific patents encompass elements which are
specific for the diagnosis of a certain defect or disease, such as specific
nucleic acid sequences, mutations or polymorphisms correlated with
that certain defect or disease (disease gene patents). Those elements are
not only different for each diagnosis performed, but are essential to the
gene-based diagnosis of that particular disease. Contrary to technology
specific patents, there is no alternative to possibly circumvent such an
essential diagnosis patent when performing genetic testing for the par-
ticular disorder.22 According to Verbeure, especially within the group
of diagnosis specific patents, blocking positions may arise, 23 as many of
the genes associated with the more than 1,000 genetic diseases which
can be diagnosed today, are patented.24
Furthermore, due to the cumulative nature of research in this area,
a vertically oriented thicket may develop: a first patent may be granted
on the initially unravelled diagnostic gene-disease link, while at a later
stage of the research additional patents may be filed on specific muta-
tions within that gene.25 These types of patents centre on a single gene
and exhibit a high degree of interdependence urging patent owners to
cooperate. A horizontally oriented thicket may pop up with multi-trait

19
╇ Vlassak, K. and Schüller, K., ‘The Effect of Patents on Diagnostic Research and Kit
Development’, in G. Van Overwalle (ed.), Gene Patents and Public Health, Brussel,
Bruylant, 2007, 99–113, at 104.
20
╇ Verbeure, see Chapter 1 of this volume.
21
╇ Verbeure, see Chapter 1 of this volume with reference to Vlassak and Schüller, ‘The
Effect of Patents on Diagnostic Research and Kit Development’, 2007, 99–113.
22
╇ Verbeure, see Chapter 1 of this volume. 23╇ On blocking patents, infra, p. 389.
24
╇ Verbeure, see Chapter 1 of this volume. 25╇ Ibid.
 Of thickets, blocks and gaps 389

or multi-gene based disorders, where one disease may be caused by

defects caused by different genes, independently or cooperatively.
In conclusion, empirical data have not demonstrated an actual and
acute problem yet, and recent literature sometimes appears, as Goldstein
states, “to reflect more a premonition of problems to come than exist-
ing paralysis of commerce”.26 However, the problems of patent thickets
in the field of genetics are “real”, 27 especially in the field of diagnos-
tics. Concerns on how these thickets may hinder access to health care
and the supply of diagnostic testing services therefore merit further
attention.

Blocking patents
An anticommons effect may not only arise from the existence of mul-
tiple patents covering the same application or technology and held by
multiple patent owners. The phenomenon may also appear in case of
a single, so-called ‘blocking’ patent. The term ‘blocking patent’ is not
clear and can be used in different ways. In its widest sense, any patent
is by definition a blocking patent, as a patent confers upon its proprietor
the right to stop others from making, using, offering for sale, selling
or importing the patented invention.28 Used in this sense, the notion
blocking patent is a tautology. In a more narrow sense, a blocking patent
is a patent covering essential features of the invention which cannot be
invented around. Verbeure uses the term in this way and suggests (albeit
using the term ‘blocking position’) that a blocking patent position is “a
patent covering all or part of the technology that is essential to a certain
activity”.29 In its strictest sense, a blocking patent is a patent covering
essential features which are licensed in a very restrictive manner. Correa
interprets the term in this manner and argues that the risk of a blocking
position arises with IP fragmentation “if one of the essential technolo-
gies is licensed on exclusive terms so third parties cannot have access to
part of the technology deemed necessary to manufacture a product”.30
It should be borne in mind that a blocking patent is a relative con-
cept, bearing on the presence of two distinct components or layers:
an essentiality component and an instrumentality component. Judging
whether a patent is blocking or not, cannot take place in the abstract,
but requires a case-by-case evaluation. Given that a certain activity or
function is envisaged (instrumentality component), an assessment is

26
╇ Goldstein, see Chapter 4 of this volume. 27╇ Ibid.
28
╇ See art. 28 1 TRIPs Agreement.
29
╇ Verbeure, see Chapter 1 of this volume. My italics.
30
╇ Correa C.E.M., ‘Case 2. The SARS case. IP fragmentation and patent pools’,
Chapter€3 of this volume.
390 Geertrui Van Overwalle

required as to which elements are essential to perform that activity or

function and whether these essential elements are claimed by the patent
at stake (essentiality component). Only when the elements are indis-
pensable or essential to achieve that specific result – in other words,
when the essential elements are a necessary means to an end – and only
when they are claimed in the patent, that patent is a blocking patent.
In the area of genetic diagnostics, a patent encompassing claims on the
entire (or relevant part of the) gene sequence, on a common pathogenic
mutation or on the fundamental method to determine the association
between a mutated gene and an inherited disease is blocking for carry-
ing out the genetic test based on nucleotide analysis for that disease. A
patent including the same claims is most likely not blocking for carrying
out the test based on an analysis at the protein level (a so-called protein
determination assay).31
In the present volume, the term ‘blocking patent’ will be used in
the second, more narrow, albeit multi-layered sense. A blocking patent
refers to a patent covering (some or more) features which are essential
for a certain activity or function, irrespective of the way in which the
patent is being licensed.

In the field of diagnostic testing blocking patents are likely to appear.

For diagnostic testing based on DNA sequences, a prognosis is usually
based on the disclosure of a link between a disease and a genetic defect
(mutation). As Verbeure,32 and also Matthijs and Van Ommen indicate,
a major problem with diagnostic gene patents stems from the fact that
it is impossible “to invent around, i.e. to invent an alternative test that
would not require the gene sequence or gene product”.33 In that regard
it is misleading to talk about alternative tests: “alternative tests might
involve different or novel technologies – which can indeed be inventive
and become a proprietary tool – but all these methods still interrogate
the same genetic sequence”.34 Thus, the owner of a gene patent effect-
ively has a ‘blocking patent’, as he holds a patent covering all or part
of the features (namely a gene) that are essential to a certain activity
(namely testing).
Several studies have pointed to blocking patents and have addition-
ally documented restrictive licensing in the area of gene-based diag-
nostic genetic services.35 Over the last years, some biotech companies

31
╇ In view of the definition of a genetic diagnostic test given above, a protein determi�
nation assay would not be qualified as a ‘genetic diagnostic test’.
32
╇ Supra. 33╇ Matthijs & Van Ommen, see Chapter 20 of this volume. 34╇ Ibid.
35
╇ Cho M.K., Illangasekare, S., Weaver, M.A., Leonard, D.G. B. and Merz, J.F. ‘Effects
of Patents and Licenses on the Provision of Clinical Genetic Testing Services.’,
 Of thickets, blocks and gaps 391

have either refused to license some inventions or have licensed them

exclusively at relatively high prices. Laboratories have been confronted
with cease-and-desist letters from patent holders or exclusive licensees,
which have induced some of them to cease performing specific tests
and/or refrain from test development.36 A case that received wide pub-
lic attention was the breast cancer (BRCA) case where the gene pat-
ents and the restrictive licensing policy of the patent holder Myriad
manifestly illustrated the foul reality of a blocking patent.37 Blocking
patents and unreasonable licensing practices may jeopardize the qual-
ity and continuity of testing, hinder the supply of diagnostic testing
services and drive up costs.38 Concerns about the impact of blocking
patents and restrictive licensing on health care should therefore not be
underestimated.

5(1) Journal of Molecular Diagnostics, 2003, 3–8; Matthijs, G., ‘DNA Diagnostics
in Practice’, in G. Van Overwalle (ed.), Gene Patents and Public Health, Brussel,
Bruylant, 2007, 27–44; Leonard, D., ‘Gene Patents: A Physician’s Perspective’,
Paper presented at a meeting of the US National Academies’ Science, Technology
and Economic Policy (STEP) Board (available at http://www7.nationalacademies.
org/step/Leonard_presentation_October_proteomics.ppt); Walpole, I.R., Dawkins,
H.J.S., Sinden, P.D. and O’Leary P.C. ‘Human Gene Patents: The Possible Impacts
on Genetic Services Healthcare’, 179 Medical Journal of Australia 2003, 256–83.
36
╇ Merz, J. F., Kriss, A. G., Leonard, D. G. B. and Cho, M., ‘Diagnostic testing fails the
test’, 415 Nature, 2002, 577–9; Walpole et al., ‘Human Gene Patents: The Possible
Impacts on Genetic Services Healthcare’, 2003; Cho et al., ‘Effects of Patents and
Licenses on the Provision of Clinical Genetic Testing Services’, 2003. Also see van
Zimmeren, E., ‘Clearinghouse mechanisms in genetic diagnostics. Conceptual
framework’, Chapter 5 of this volume.
37
╇ See Matthijs and Van Ommen, Chapter 20 of this volume. Also see, Baldwin, T.,
‘Ethics and Patents for Genetic Diagnostic Tests’, in G. Van Overwalle (ed.), Gene
Patents and Public Health, Brussel, Bruylant, 2007, 45–59; Caulfield, T., Bubela, T.
and Murdoch C.J., ‘Myriad and the Mass Media: the Covering of a Gene Patent
Controversy’, 9 Genetics in Medicine, 2007, 850–5; Caulfield et al., ‘Evidence and
Anecdotes: An Analysis of Human Gene Patenting Controversies’, 2006; Matthijs,
G. and Halley, D. ‘European-wide opposition against the breast cancer gene patents’,
10 European Journal of Human Genetics, 2002, 783–4.
38
╇ See Matthijs and Van Ommen, Chapter 20 of this volume, with a reference to Cho
et al., ‘Effects of Patents and Licenses on the Provision of Clinical Genetic Testing
Services’, 2003. Also see van Zimmeren, Chapter 5 of this volume: “[It] could impede
further development of an existing test and research into complementary or alter-
native methods of diagnosis. Furthermore, testing will be quantitatively limited to
the capacity of the patent owner, which will not necessarily meet the demands of the
number of patients. Additionally, there would be no price competition which might
lead to a substantial increase in genetic testing costs and thus a serious drain on funds
of public health services. The medical practice could be dictated by the single pro-
vider without procedures for ensuring quality control and peer review. And the close
link between testing, clinical and counselling services could be disrupted. Even in the
case where the patent owner would be rather ‘cooperative’ and would issue exclusive
licenses for a specific territory and/or a specific type of testing, further research and
the provision of clinical testing services could be seriously hampered.”
392 Geertrui Van Overwalle

Translational gap
Next to patent thickets and blocking patents, attention has also been drawn
to the cumbersome interaction between early-stage genetic research and
particular clinical applications, in other words ‘translation’. New genetic
inventions may not find their way into products and a ‘translational gap’
might widen to form a ‘valley of death’ between the traditional finishing
point of research (supported by academic grants) and clinical and thera-
peutic applications (funded by the private sector).39
The definition of translational research is in flux and can have both a
specific and a general meaning. The narrowest definition is ‘bench-to-
bedside’ research wherein a basic laboratory discovery becomes applic-
able to the diagnosis, treatment or prevention of a specific disease and
is brought forth by either a physician-scientist who works at the inter-
face between the research laboratory and patient care or by a team of
basic and clinical science investigators.40 Translational research may also
refer to the wider spectrum of patient-oriented research that embraces
innovations in technology and biomedical devices as well as the study
of new therapies in clinical trials.41 In translational research, traditional
boundaries among basic research, clinical research and patient-oriented
research are yielding to a single, continuous, bidirectional spectrum.42,â•›43

Recent surveys indeed seem to confirm the emergence of major

obstacles to translational research in genetics44 and have identified the
transaction costs associated with academic–industry negotiations over
drug-related problems as a significant barrier.45 The problems in the

39
╇ Moran, N., ‘Public Sector Seeks to Bridge ‘Valley of Death’, 25 Nature Biotechnology,
2007, 266.
40
╇ Pizzo, P., ‘Letter from the Dean’, Stanford Medicine Magazine, Fall 2002.
41
╇ Ibid.
42
╇ Hörig, H., Marincola, E. and Marincola, F., ‘Obstacles and Opportunities in
Translational Research’, 11 Nature Medicine, 2005, 705–8.
43
╇ Scientists are increasingly aware that translational research is really a two-way street,
where the drive to cure should be complemented by the pursuit to understand human
diseases and their complexities (Marincola, F., ‘Translational Medicine: a Two Way
Road’, 1 J Transl Med, 2003, 1). Thus, one important aspect of translational medicine
is going back from the bedside to the laboratory with observations made in human
studies. Although the goals of translational research are essentially no different from
those of traditional academic clinical research, translational research emphasizes
strategies to expedite their successful implementation (Hörig et al., ‘Obstacles and
Opportunities in Translational Research’, 2005).
44
╇ Hörig et al., ‘Obstacles and Opportunities in Translational Research’, 2005, 705–8.
45
╇ Walsh, J.P., Cho, C. and Cohen, W.M., ‘Where Excludability Matters: Material
Versus Intellectual Property in Academic Biomedical Research’, 36 Research Policy,
2007, 1184–1203, see 1185–87; Lipinski, C.A., ‘The Anti-Intellectual Effects of
Intellectual Property’, 10 Current Opinion in Chemical Biology, 2006, 380–383.
 Of thickets, blocks and gaps 393

field of diagnostics seem to be less prominent here, however, as useful

products may arise directly from basic genomic research.46 Unsolved
problems of translation diminish the development of new drugs and
treatment, at the detriment of patients, and should therefore be taken
to heart.

Comparison of obstacles
A first, tentative comparison47 between the reported obstacles indi-
cates that patent thickets and blocking patents mainly seem to occur
in upstream research, whereas the valley of death mainly seems to be
present in downstream research. Upstream refers to a position within
the production stream closer to manufacturing processes, and down-
stream points toward the latter stages of a usually industrial process
or the stages (as marketing) after manufacture.48 Upstream research
may include products (research tools or platform technologies) which
are required by downstream researchers in the course of their further
R&D.49
The distinction between upstream and downstream research has
only been introduced recently. Traditionally, a major distinction was
made between basic research, which is curiosity driven, and applied
research, directed to a particular application (the development of a
new drug or vaccine). This distinction has been blurred in the wake of
�genomics-based research, where useful products (e.g. diagnostic tests)
may arise directly from basic genomic research.

46
╇ See World Health Organisation (WHO), Public health, Innovation and Intellectual
Property Rights, Report of the Commission on Intellectual Property Rights, Innovation
and Public Health, WHO, April 2006, 53 (available at www.who.int/intellectualprop-
erty/documents/thereport/CIPIH23032006.pdf). Cf. Verbeure, Chapter 1 of this vol-
ume: “Unlike gene-based drug development, the development of a gene-based diag-
nostic test based on the fundamental finding of the link between a particular nucleic
acid sequence and the aetiology of a disease does not involve the same enormous
investment. A principal argument for patenting biomedical inventions is the fact that
typically, post-invention development costs far exceed pre-invention research expen-
ditures, and firms are unable to make this substantial investment without protection
from competition. Patents therefore facilitate transfer of technology to and within the
private sector by providing exclusive rights to preserve the profit incentives of inno�
vating firms. Additionally, for drug development based on genomic knowledge one
could envisage parallel but different routes to obtain a drug. In other words, in con-
trast to diagnostic testing, for drug development there is still some room for inventing
around. The justification of a right to exclude others from exploitation of the technol-
ogy seems therefore less obvious and acceptable with regard to gene-based diagnostic
testing as for drug development.”
47
╇ A more in-depth analysis is developed below, see p. 437.
48
╇ See Merriam-Webster’s Online Dictionary available at www.merriam-webster.com.
49
╇ World Health Organisation, Public Health, Innovation and Intellectual Property Rights,
2006, 49 ff.
394 Geertrui Van Overwalle

An additional observation is that the major problem caused by patent

thickets and blocking patents relates to access to and use of patented
inventions. In contrast, the major problem in the valley of death relates
to translation of early-stage upstream inventions into applications.

Deeper root: limits to the functions of patent law

In an attempt to deepen our understanding of how patent thickets,
blocking patents and translational gaps are caused, and grasp the
deeper root of the current tensions, we briefly turn to patent law theory.
Traditional patent law theory teaches that the major objective of patent
law is to encourage the development of new goods and services and to
disclose underlying technologies, by granting the patentee a tempor-
ary monopoly on the patented invention in return for the disclosure of
the description of the invention. In doing so, patent law aims at serv-
ing both private and public interest. This consequentialist, utilitarian
justification, focusing on both the incentive to invent/�innovate and the
incentive to disclose argument, is probably most accepted to€date.

Applying a functions-and-limits approach50 to traditional patent law

theory might offer helpful insights on current impasses in the genetic
patent landscape. This approach suggests that law fulfils various func-
tions, amongst which are the regulatory function, the symbolic function
and the function to provide legal guarantees. The major function, the
regulatory function, aims at regulating relations between the author-
ities and the citizens and amongst citizens. Patent law develops a verti-
cal regulatory function by establishing competent authorities assigning
rights to patent applicants and prescribing patentability criteria, for-
mal requirements and granting procedures. Patent law also warrants
a horizontal regulatory function, by defining the contours of the right
between the patent holder and the potential licensees and the public at
large, in the post-grant phase.51
Cross-industry based research has suggested that the effective-
ness of the patent system may vary across different industry sectors.52

50
╇ See Claes, E., Devroe, W. and Keirsbilck, B., ‘Introductory Chapter – The Limits of
the Law’, in E. Claes, W. Devroe and B. Keirsbilck (eds.), Limits of the Law, Springer,
2009, pp. 1–24.
51
╇ See Van Overwalle, G. and Van Zimmeren, E., ‘Functions and Limits of Patent Law’,
in E. Claes, W. Devroe and B. Keirsbilck (eds.), Limits of the Law, Springer, 2009, pp.
415–42. In doing so, we partly apply the analytical model set forth by Claes et al.
52
╇ Moser, ‘How Do Patent Laws Influence Innovation? Evidence from Nineteenth-
Century World’s Fairs’, 95 The American Economic Review, No. 4, September 2005.
 Of thickets, blocks and gaps 395

This is not entirely unexpected since the impact of the patent system
depends on its interaction with environmental conditions, which vary
across sectors.53 According to conventional wisdom, patent law fulfils
its regulatory function quite well in the pharmaceutical sector where it
is believed to stimulate the delivery of drugs and therapies important
for health care. However, patent law seems to experience some limits in
achieving its objectives (foster innovation, public health interests) and
regulatory function in the area of genetics. The occurrence of patent
thickets and blocking patents in genetics may indicate that the patent
system has some adverse effects. As the explosion of gene patents
arises to a great extent from current patent legislature and judiciary
formally recognizing the patentability of genes, the current impasse
might be interpreted as a failure of the vertical regulatory function
within the patent system.54 The restrictive licensing behaviour of some
patent owners, equally suggests that patent law may have a blocking
effect. As unfair licensing largely results from the patent (and competi-
tion) law legislature not setting clear limits and not providing enforce-
able guidelines with regard to the exploitation and licensing of patent
rights, the current problems might well be interpreted as a failure of
the horizontal
� regulatory function.

53
╇ Cowan, R., van der Eijk, W., Lissoni, F., Lotz, P., van Overwalle, G. and Schovsbo, J.,
Policy options for the improvement of the European patent system, Report commissioned
by STOA (Scientific Technology Options Assessment) of the European Parliament,
2007, 13 (www.europarl.europa.eu/stoa/publications/studies/stoa16_en.pdf).
54
╇ For Europe, the patentability of human gene patents was formally recognized in
art.€5 of the European Biotechnology Directive (Directive 98/44/EC of 6 July 1998
of the European Parliament and of the Council on the legal protection of biotech-
nological inventions, Official Journal L 213, 30 July 1998, 13, also available at http://
europa.eu.int/eur-lex/en/lif/dat/1998/en_398L0044.html) which is now implemented
in all 27 EU member states and in the EPC Implementing Regulations. For the US,
the patentability of living material took a start with the Chakrabarty decision of the
Supreme Court in 1980. Although the USPTO holds that a human gene as it occurs
in nature cannot be patented, a DNA sequence which is purified and isolated in the
form of a cDNA or is part of a recombinant molecule or vector, is patentable under
the precedent of the so-called andrenaline case of 1912 in Parke-Davis v. H. K.Mulford.
This case upheld a patent on adrenaline, a natural hormone that was found in animal
glands. The patent applicant identified, isolated and purified the active ingredient
namely adrenaline. This created a product that did not exist in nature in that precise
form and that could be used for medical treatment. Also see ‘Utility Examination
Guidelines’, 66 Federal Register, 4, 5 January 2001, Notices, (1092), 1093: “An isolated
and purified DNA molecule that has the same sequence as a naturally occurring gene
is eligible for a patent because (1) an excised gene is eligible for a patent as a com-
position of matter or as an article of manufacture because that DNA molecule does
not occur in that isolated form in nature, or (2) synthetic DNA preparations are eli-
gible for patents because their purified state is different from the naturally occurring
compound”.
396 Geertrui Van Overwalle

Contemplating on the discomfort within current IP from a critical

angle, leads Taubman to specify that the root problem may spring from
three levels: the inherent legitimacy of the foundational principles of IP
law and policy (system design), the application in practice at the level
of governance and administration (execution) or the impact of the indi-
vidual exercise of rights granted under the system (perverse individual
choices).55 Translating his analysis into the functions-and-limits narra-
tive, suggests that the current problems in the genetic patent landscape
mainly result from shortcomings in the regulatory function, aggravated
by individual choices made within the system which are at odds with
the basic objectives of the system.

Reflecting on current problems through the institutional analysis’ lit-

erature, as suggested by Dedeurwaerdere, leads to a similar uncomfort-
able conclusion. This literature equally focuses on the objectives of patent
law and sets them forth in terms of a response to the ‘diffusion/innovation
dilemma’ and the ‘exploration/exploitation dilemma’.56 Dedeurwaerdere
suggests that the first dilemma is at the core of the anticommons prob-
lems leading to patent thickets, and that the diffusion problems are also
present in cases where ‘holdouts’ maintain unreasonably restrictive
licensing practices. The second dilemma is at the core of the discussion
on translational measures where the goal is to create incentives for invest-
ing in uncertain downstream product development and where collec�tive
action57 is suggested to organize wide and early diffusion of research
results, while recognizing the importance of private property rights for
creating individual or organizational incentives for innovation.58

25.3 Research question

A more conceptual analysis of the trends and concerns observed in the
current genetic patent landscape reveals some limits in patent law. These

55
╇ Taubman, A., ‘Several kinds of “should”: the ethics of open source in life sciences
innovation’, Chapter 16 of this volume.
56
╇ For a more extensive discussion of these dilemmas, see Cook-Deegan, R. and
Dedeurwaerdere, T., ‘The Science Commons in Life Science Research: Structure,
Function and Value of Access to Genetic Diversity’, 188 The International Social
Science Journal, 2006, 309−12.
57
╇ ‘Collective action’ is the pursuit of a goal or a set of goals (e.g. the provision of public
goods) through the collaboration of two or more individuals. For more, see Olson,
M., The Logic of Collective Action: Public Goods and the Theory of Groups, Harvard
Economic Studies, 1965, 108. Also see footnote 62.
58
╇ Dedeurwaerdere, T., ‘The role of law, institutions and governance in facilitating
access to the scientific research commons. A philosopher’s perspective’, Chapter€24
of this volume.
 Of thickets, blocks and gaps 397

limits relate to the objectives and the regulatory function of patent law.
The limits encountered entice an in-depth reflection on possible meas-
ures to assist modern patent law in achieving its major objectives again
and in coping with its regulatory function.
One way to deal with the current ‘patent paradox’ is to preclude
the coming into existence of gene patents and twist patent law around
again to exclude genes from its field of application, in other words act
upon the vertical regulatory function. An alternative strategy might be
to regulate and monitor the exercise of patent rights and licensing, in
other words, affect the horizontal regulatory function.

Starting goals
But, how to determine the best measure? In order to single out the most
adequate measure it is necessary to identify a (set of) well-defined
goal(s) against which the measures can be calibrated.59 However, dif-
ferent stakeholders may have different goals, or interpret similar goals
in a different way. The public opinion, the research community, health
care professionals and biotechnological companies may all have differ-
ent opinions on what to achieve and what to avoid when it comes to
patenting and licensing of human genes. The public opinion might aim
at banning the patent system; the research community might favour
a patent system with a maximum of freedom to operate in order to
develop high-quality genetic tests; health care professionals might want
a system promoting low prices for genetic tests; small and medium bio-
tech enterprises might support a protection system with low transac-
tion costs; and big biotech companies might aim at a patent system
with maximum exclusivity to recoup investments and protect markets.
Analysing the goals of all relevant stakeholders is beyond the scope of
the present book. Furthermore, collecting information on the goals of
the various stakeholders on an empirical basis, will not resolve the nor-
mative choice which will then have to be made, requiring considerable
thought on underlying values.60 Therefore, it is assumed in the present
volume that the common goals are (a) to maintain the current function

59
╇ The author is grateful to Göran Hermerén for insisting on the need to articulate the
goals explicitly, in order to enable a comparison between the various measures at hand
and the best measure. The conceptual, multi-step scheme set forth in Hermerén’s
paper on ‘Challenges in the Evaluation of Nanoscale Research: Ethical Aspects’
(Nanoethics, 2007, 223) was also very helpful in this regard.
60
╇ Cf. Hermerén, G., in Part II. Philosophical Considerations, in Fleischhauer, K. and
Hermerén, G., Goals of Medicine in the Course of History and Today, Stockholm, Kungl.
Vitterhets Historie och Antikvitets Akademien, 2006, 354 ff.
398 Geertrui Van Overwalle

of the patent system to serve as a (positive) incentive for the production

of drugs and therapies important in health care and (b) to remedy some
of its (hindering) effects in the field of genetics and in diagnostics in
particular. If what we want to achieve is to look (a) within the bounda�
ries of the patent system (b) for solutions that mitigate possible harmful
effects of patents in genetics, then both strategies (exclude genes from
patent law again and regulate licensing behaviour) might prove to be
helpful in remedying current problems.
If we assume that an additional goal is to achieve some improve-
ments (c) within a reasonable period of time, then facilitating licensing
in ge�netics might turn out to be more adequate than carving out gene
patents from patent law. However valuable the exclusion of gene patents
may be,61 the feasibility and pace to do so will greatly be hampered by
processes of domestic and/or international patent law reform. As (cen-
tralized) decision making by state regulators tends not to be very pli-
able, swift and plastic responses to changing conditions may take quite
some time. (Decentralized) decision making by stakeholders might be
more flexible and conducive to change. Focusing on the contractual
design of tools which optimize the use of a multitude of (blocking) pat-
ents may therefore be the best option.
Translating this solution into patent law theory language suggests
that the best way to remedy current obstacles in the genetic patent land-
scape is to work on the horizontal regulatory function of patent law62 by
designing formal rules of contract.63

Research assumptions
The following assumptions will act as a point of departure in further
designing adequate measures to improve access to and use of patents
in the field of genetic diagnostics, an area in human genomic science

61
╇����������������������������������������������������������������������������������The exclusion of gene patents might not only prevent some recently emerging prob-
lems, such as patent thickets and blocking patents, but might equally respond to old
criticisms relating to unacceptable instrumentalisation of the human body through
appropriation by patents. For more, see Van Overwalle, G. ‘Legal and Ethical
Aspects of Bio-Patenting. A Critical Analysis of the EU Biotechnology Directive’,
in C. Baumgartner and D. Mieth (eds.), Patente am Leben? Ethische rechtliche und
politische Aspekte der Biopatentierung, Paderborn, Mentis, 2003, 145–58 and the refer-
ences cited there.
62
╇ For the distinction between the vertical and the horizontal regulatory function of
patent law, see p. 394.
63
╇ For the distinction between formal legal rules and formal rules of contract, see
Dedeurwaerdere, Chapter 24 of this volume.
 Of thickets, blocks and gaps 399

which seems to be most prone to suffer from patent bottlenecks in the

near future.

Contractual and collaborative shape

The first hypothesis of this collection is that in the current state of
affairs, the problems created by patent law in genetic diagnostics are
best served by contractual, collaborative measures. Our first assump-
tion is that access to and use of (patented) innovations may be achieved
more adequately and rapidly through private, collaborative efforts.
These efforts are in essence contractual in nature, as they are the result
of a consensus between parties, rather than an initiative from the legis-
lator. These efforts are collaborative, as they presuppose active cooper-
ation between various parties.64,â•›65
Studying the role of contractual, collaborative rights organizations
in mediating the use of IP rights is not new. In a path-breaking work,
Rob Merges already explored collective rights organizations, “indus-
try groups that collect IP rights from owners and license them as a
package”.66 Merges found that these organizations ease some of the
tensions created by strong IP rights and may play a valuable role in
facilitating transactions in IP rights. His efforts (and also later writings
from other scholars) have mainly focused on patent pools for ICT and
copyright collecting societies for music. The present book aims at tak-
ing the debate further and theorizes on the role of contractual, collab-
orative rights organizations in mediating the use of patents in ge�netics,
more in particular by examining genetic patent pools and patent collect-
ing �societies, next to open source genetics. Only over the last decade
scholars have started to gain a deeper understanding on how these
mechanisms should be conceptualized in a genetic context.

64
╇�������������������������������������������������������������������������������������A distinction can be made between ‘collaborative’ and ‘collective’ measures. To col-
laborate means “working jointly with others or together especially in an intellectual
endeavor”. Hence collaborative measures refer to measures where people work together.
Collective means “involving all members of a group as distinct from its individuals”
(cf. collective action). Hence collective measures refer to measures which involve all
members (See Merriam-Webster’s Online Dictionary – also for further etymological
background – available at www.merriam-webster.com).
65
╇��������������������������������������������������������������������������������������� The definition of ‘collaborative’ set forth in the present book is wider than the def-
inition employed by Rai in her article ‘Open and Collaborative Research: A New
Model for Biomedicine’ (in Robert W. Hahn (ed.), Intellectual Property Rights in
Frontier Industries: Software and Biotechnology, 2005, (131), 136) where ‘collabora-
tive’ refers to “scientists work[ing] closely with others outside their own lab or small
firm”.
66
╇ Merges, R.P., ‘Of Property Rules, Coase, and Intellectual Property, 94 Columbia Law
Review, 1994, 2655–73.
400 Geertrui Van Overwalle

This first hypothesis calls for some nuance. Differing collaborative

measures might be needed to take care of upstream and downstream
problems. Various observers have argued that the impasse patents cause
in upstream research on early-stage genetic inventions might best be
remedied by patent pools or clearinghouses, or may be open source.
Several suggestions have also been put forward to overcome the impasse
IP protection may cause in downstream research, amongst which the
establishment of translational research centres or liability regimes.
However, it is difficult to imagine that collaborative models might be
helpful to overcome the adverse effects of blocking patents. It is not
to be expected that patent pools or clearinghouses will be adequate to
mitigate the problems resulting from one or more patents belonging to
a single, uncooperative or excessive patent holder. Rather, compulsory
licence schemes and informal norms of fair licensing might come to the
rescue here.67

IPR based
At the start of our explorative tour d’horizon a second assumption is
that the contractual, collaborative measures can only function prop-
erly, if they are based on the pre-existence of IPRs in general, and
patent rights in particular. A pivotal prerequisite for innovative and
successful contractual and collaborative licensing to cut through the
patent thicket or accomplish translation, is the power of the knowledge
and/or technology owners involved to enforce users to behave in a cer-
tain way. Patent rights invest knowledge and/or technology owners
with such authority.
The suggestion that collective rights organizations are based on
IPRs is not totally new. When analysing collective rights organizations
in the light of the literature on entitlements,68 Merges already argued
that this is the case.69 The present book aims at investigating whether
this assumption also holds when it comes to genetics, and especially in
the context of open source models for genetics.

Economically viable
A third assumption is that models need to be designed which are com-
mercially sustainable and prove to be economically viable. It is our
aim to explore and perfect measures which are viable in a for-profit
context. Although recent experiences in the genetic sector suggest

67
╇ Van Overwalle, G., ‘Gene Patents and Public Health. Setting the Scene’, in G. Van
Overwalle (ed.), Gene Patents and Public Health, Brussel, Bruylant, 2007, 11–24.
68
╇ See p. 431 ff. 69
╇ Merges, ‘Contracting into Liability Rules’, 1996, (1293), 1302.
 Of thickets, blocks and gaps 401

that collaborative models are more easily established in genetics when

serving social and humanitarian motives in a not-for-profit context,70
the models should also prove to be efficient and adequate to deal with
knowledge production, protection, exchange and translation in markets
served by the profit motive, nonetheless, thereby vigilantly attempt-
ing that the profit motive does not totally override social motives and
the economic model concurrently yields socially acceptable outcomes.
Existing collaborative non-for-profit institutions may nevertheless act
like laboratories where different conditions and approaches are tested
and operationalized, and may inspire and catalyse successful examples
in a for-profit context.71

Restoring trust and halting ignoring the norm

A fourth hypothesis when examining collaborative models is that they
might help to restore trust of the research community and the general
public in the patent system.72 Recent events have convincingly shown that
the genetic community73 and public opinion at large are very sensitive to
possible unfair use of the patent system in the field of genetic inventions,
witness the strong reactions against the grant to Myriad Genetics of
patents dealing with diagnostic testing for early onset breast and ovarian
cancer based on the genes BRCA1 and BRCA2.74 The impasses identi-
fied and the criticism voiced is not always directed to the existence of the
patent system as such, but rather to some excesses in the exercise of patent
rights and the unrestrained behaviour of individual patent owners, in
an effort to maximize profit. Not responding to the public reserve with

70
╇ See Van Overwalle, G., van Zimmeren, E., Verbeure, B. and Matthijs, G. ‘Models
for facilitating access to patents on genetic inventions’, 7 Nature Reviews Genetics,
2006, 143–54. Also see Verbeure B., Van Zimmeren E., Matthijs G., and Van
Overwalle G., ‘Patent Pools and Diagnostic Testing’, 24(3) Trends in Biotechnology,
2006, 115–120.
71
╇ Schwab, K. and Hartigan, P., ‘Social Innovators with a Business Case. Facing 21st
Century Challenges. One Market at a Time’, 1 EconPapers, issue 4, 2006, 7–11 (avail-
able at http://econpapers.repec.org/article/tprinntgg/).
72
╇ See Van Overwalle, G., ‘Reshaping Bio-Patents: Measures to Restore Trust in
the Patent System’, in H. Somsen (ed.), The Regulatory Challenge of Biotechnology.
Human Genetics, Food and Patents, Cheltenham, UK – Northhampton, US, Edward
Elgar Ltd., 2007, 238–56 (Proceedings of a Conference held at the University of
Amsterdam 27–28 May 2004).
73
╇ See Matthijs and Halley, ‘European-wide opposition against the breast cancer gene
patents’, 2002. Also see, Baldwin, T. ‘Ethics and Patents for Genetic Diagnostic
Tests’, 2007; Bird, W., ‘Using the EPO Opposition Procedure as a Strategy Against
Patents on Diagnostic Methods’, in G. Van Overwalle (ed.), Gene Patents and Public
Health, Brussel, Bruylant, 2007, 73–83; Caulfield et al., ‘Evidence and Anecdotes:
An Analysis of Human Gene Patenting Controversies’, 2006; European Society of
Human Genetics, ‘Patenting and Licensing in Genetic Testing’, 2008.
74
╇ For more details, see Matthijs, ‘DNA Diagnostics in Practice’, 2007.
402 Geertrui Van Overwalle

regard to the current use of patents by the bio-industry might turn out
to be injudicious. One day the bio-industry might find itself being con-
fronted with a public opinion taking the view that ethical concerns and
moral principles are more important than greater competitiveness, eco-
nomic growth and biotechnological development.75 For the patent sys-
tem to be widely accepted, it is vital that it is generally recognized as a
tool fostering both private and public interest. Formally expanding the
concept of public interest to encompass health care has been one attempt
to do so.76 Taking full account of human rights discourse in patent law
and making a human rights approach in patent law more explicit and
exacting would be another way to act.77 Constructing adequate clearing
mechanisms and conditions of exchange through innovative licensing
schemes can be another alternative to restore trust in both the private
and public interest objectives of the patent system in the wider society,
pertaining to economic and social welfare.
A closely related assumption is that the set-up of collaborative models
offering fair and reasonable licensing terms, might lead to a decrease
of the tacit, wilful ignorance of patents amongst users. Empirical work
in the biomedical sciences suggests that many scientists, both in uni-
versities and in industry, currently ignore the question of whether their
activities are covered by a patent.78 It has been suggested that this
�strategy is an inappropriate and unstable policy.79 The introduction of

75
╇ See Van Overwalle, ‘Legal and Ethical Aspects of Bio-Patenting. A Critical Analysis
of the EU Biotechnology Directive’, 2003.
76
╇ First suggested in legal doctrine (see e.g. Correa C., ‘The GATT Agreement on Trade-
related Aspects of Intellectual Property Rights: New Standards for Patent Protection’,
European Intellectual Property, 1994, 327–31; Van Overwalle, G., ‘Klinische proeven
en volksgezondheid. Naar een herijking van het algemeen belang in het octrooirecht’,
Tijdschrift voor Privaatrecht, 2000, 899–968), article 8 (1) TRIPs, supplemented with
the various Declarations, now offers a firm legal basis for such an interpretation.
77
╇ See Van Overwalle, G., ‘Human Rights’ Limitations in Patent Law’, in W. Grosheide
(ed.), The Human Rights Paradox in Intellectual Property Law, Oxford, Edward Elgar
Publishing Ltd, 2009 (in press). Also see Van Overwalle, ‘Reshaping Bio-Patents:
Measures to Restore Trust in the Patent System’, 2007.
78
╇ Walsh, J. P., Arora, A. and Cohen, W.M., ‘Effects of Research Tool Patents and
Licensing on Biomedical Innovation’ in W.M. Cohen and S.A. Merrill (eds.), Patents
in the Knowledge-Based Economy, Washington, The National Academies Press,
2001, 285–340; National Research Council of the National Academies, Reaping the
Benefits of Genomic and Proteomic Research: Intellectual Property Rights, Innovation, and
Public Health, 2003, 119–27. Also see Strandburg, K., ‘Sharing Research Tools and
Materials: Homo Scientificus and User Innovator Community Norms’, in Dreyfuss,
R. and Zimmerman, D. (eds.), Working Within the Boundaries of Intellectual Property,
Oxford University Press (forthcoming), and the references cited there. Article on file
with the author.
79
╇ Caulfield et al., ‘Evidence and Anecdotes: An Analysis of Human Gene Patenting
Controversies’, 2006, (1091), 1093. Also see National Research Council of the
National Academy of Sciences (Committee on Intellectual Property Rights in the
 Of thickets, blocks and gaps 403

one-stop licences, through the establishment of collaborative arrange-

ments might promote a spontaneous registration by the users.80

Research hypothesis
Given the growing concern that gene patents might curb the use of
ge�netic inventions, increase costs, frustrate the development of tests
and treatments and – ultimately – lead to restricted access to health-
care, the present book focuses on the question how access to research
and development can be achieved, and what measures should be taken
to render patented genetic inventions accessible for further use. This
central question is narrowed down to what measures should be contem-
plated to safeguard research and development in genetic diagnostics, as
this area seems to be most prone to suffer from the impact patents may
have in the near future. This question is also made more explicit and
exacting by introducing well-identified goals and a series of assump-
tions. Based on the preset goals and assumptions, the research question
can be rephrased as a research hypothesis.
The central research hypothesis and starting point of the present
book is that access in genetic diagnostics is best served by the design of
(1) contractual, collaborative models (2) based on the pre-existence of
IP rights, (3) which are economically viable, without overriding social
motives, (4) thus restoring trust in the patent system and offering an
alternative for ignoring the patent norm.

25.4 Proposed solutions

Over the years, various models have been suggested and put to work
to ‘clear’ patents and facilitate the use of patented inventions. Just
think of bilateral licences, cross-licences or multiparty agreements (see
Table€ 25.1, text in italic). Studies of these conventional collaborative
8182

models and other models have indicated, however, that they tend to
have limited capacity in solving current problems in the genetic patent
landscape in an efficient and secure manner.83

Knowledge-Based Economy), A Patent System for the 21st Century, Washington,

National Academies Press, 2004, 172; Eisenberg, R., ‘Science and the Law: Patent
Swords and Shields’, 299 Science, 2003, 1018–9.
80
╇ Cf. Verbeure et al., ‘Patent Pools and Diagnostic Testing’, 2006.
81
╇ A ‘clearing mechanism’ is any mechanism aiming to clear patent thickets. A clearing-
house is a specific type of clearing mechanism.
82
╇ See previous footnote.
83
╇���������������������������������������������������������������������������������������� See Van Overwalle, et al., ‘Models for facilitating access to patents on genetic inven-
tions’, 2006.
404 Geertrui Van Overwalle

Table 25.1 Models facilitating access, use and translation of proprietary

(genetic) inventions

Clearing Working solutions Ignoring the patent

mechanisms81 Inventing around
Non-collaborative models Research exemption

Collaborative Conventional Bilateral licensing

models Cross licensing
Multiparty licensing
New Patent pool
Clearinghouse82
Open source
Liability regime

In the present collection we aim to deepen our understanding of

new collaborative licensing models and to test their potential to solve
impasses in upstream and downstream research in genetics. The col-
laborative models subjected to further analysis in the present book are
patent pools, clearinghouses, open source and liability regimes (see
Table 25.1, text in black). The distinction between upstream and down-
stream is important here, as different solutions have been proposed for
different areas of application. Patent pools, clearinghouses and open
source have been suggested to solve the patent thicket problem emerg�
ing in upstream research. Translational research centres and liability
regimes have been put forward to remedy the translational problem
faced in downstream research.
The various authors of the present volume have carefully explored
those new licensing models. Their papers form the quintessential part
of the �present collection. The following sections recapitulate their major
findings and put them in a wider (comparative) context.

Patent pools
A first model that has been suggested to deal with patent thickets and
to make proprietary genetic inventions more easily accessible for fur-
ther use is the patent pool model. Do patent pools indeed remedy the
problems resulting from patent proliferation in the genetic diagnostic
field? The authors in Part I and Part V have explored patent pools and
their potential to solve said problems from a panoply of perspectives,
 Of thickets, blocks and gaps 405

both theoretical and practical. In the next section we will take a closer
look at their analyses.

General concept and framework

A patent pool has been commonly defined as an agreement between
two or more patent owners to license one or more of their patents to
one another or as a package to third parties who are willing to pay the
royalties associated, either directly by patentees to licensees or, indi�
rectly, through a new entity specifically set up for the pool adminis-
tration.84 This standard definition is also applied by Verbeure in her
concept paper.85 Verbeure and Horn further remind us that a patent
pool thus allows interested parties to gain access to all patents to work
an invention with one single licence, hence the term ‘one-stop-licence’
or ‘all-in-one-licence’ has been set forth to qualify this type of licence
agreement.
Various types of patent pools can be distinguished.86 Depending on
the way the patent pool came into being, a distinction can be drawn
between a patent pool set up amongst a group of licensors for a technol-
ogy or standard, and between a patent pool established after an open
call for a certain standard.87 Depending on the way the agreements
with third parties are accomplished, a distinction can be made between
a pool which is managed by one licensor acting as an intermediate agent
between patentees and licensees, and a pool which is governed by an

84
╇ Clark, J., ‘Patent Pools: a Solution to the Problem of Access in Biotechnology Patents?
White Paper commissioned by Q. Todd Dickinson, the Under Secretary of Commerce
for Intellectual Property and Director of the United States Patent and Trademark
Office, 2000 (available at www.uspto.gov/web/offices/pac/dapp/opla/patentpool.pdf);
Klein, J.I., Business Review Letter to Gerrard R. Beeney, 1997 (available at www.
usDoJ.gov/atr/public/busreview/1170.htm); Merges, R.P., ‘Institutions for Intellectual
Property Transactions: the Case of Patent Pools’ in R. Dreyfuss, D.L. Zimmerman
and H. First (eds.), Expanding the Boundaries of Intellectual Property, Oxford University
Press, 2001, 123–66.
85
╇ Verbeure, see Chapter 1 of this volume. Also see Verbeure et al., ‘Patent Pools and
Diagnostic Testing’, 2006; Van Overwalle, et al., ‘Models for facilitating access to pat-
ents on genetic inventions’, 2006. A figure of a patent pool can be found at Verbeure,
see Chapter 1 of this volume (Figure 1.1).
86
╇ See Clark, ‘Patent Pools: a Solution to the Problem of Access in Biotechnology
Patents?’, 2000; Merges, ‘Institutions for Intellectual Property Transactions: the
Case of Patent Pools’, 2001; Shapiro, ‘Navigating the Patent Thicket’, 2001; Van
Overwalle, ‘Models for Facilitating Access to Patents on Genetic Inventions’, 2006.
87
╇ The first has been termed ‘joint licensing scheme’ in Bekkers, R., Iversen, E. and
Blind, K. ‘Patent Pools and Non-Assertion Agreements: Coordination Mechanisms
for Multi-Party IPR Holders in Standardization’, Paper for the EASST 2006
Conference, Lausanne, Switzerland, August 23–26, 2006 (available at http://www2.
unil.ch/easst2006/Papers/B/Bekkers%20Iversen%20Blind.pdf). Also see Verbeure,
Chapter 1 of this volume.
406 Geertrui Van Overwalle

independent body. A typical example of a pool managed by one party

is the DVD pool.88 Prominent examples of pools managed by an inde-
pendent authority are the MPEG-2 pool, illustrated by Horn,89 and
the SARS (Severe Acute Respiratory Syndrome) corona virus pool,
described by Correa.90,â•›91
The reasons put forward for setting up a patent pool have varied con-
siderably over time, but as Verbeure argues and as Ullrich confirms,
many late-modern pools are set up in an endeavour “to deal with sub-
stantial patent thickets for technologies that were essential to one and
the same technical standard”.92 A standard is a norm or measure that
may be the result of a formal consensus-building procedure that is
managed by a standardization body 93 (de jure standards) or arise sponta�
neously due to the degree of market penetration of a particular tech-
nical solution (de facto standards).94
Patent pools have been successfully employed in consumer electron-
ics, telecommunications, computer and related industries. A promin-
ent example is the MPEG LA licensing model.95 As Horn highlights,
in the 1990s, the MPEG LA model enabled multiple MPEG-2 users
to acquire essential patent rights from multiple patent holders in a sin-
gle transaction for the MPEG-2 standard, required for DVD, satellite,
cable and other digital video applications. Over time, the MPEG-2
patent portfolio licence has grown from the original 8 patent owners
and 100 essential patents to include more than 825 essential patents
in 57 countries owned by 25 patent owners and approximately 1,200

88
╇������������������������������������������������������������������������������The DVD4C patent pool is managed by Philips and the DVD6C patent pool is man-
aged by Toshiba (see www.dvd6cla.com).
89
╇ See Horn, Chapter 2 of this volume.
90
╇ See Correa, Chapter 3 of this volume: “an entity shall be appointed as the pool
manager”.
91
╇ In literature references can also be found to a ‘patent platform’, which has features in
common with both a patent pool and a patent forum. An example of such an approach
is the 3G platform (www.3g.co.uk/). For more, see Verbeure, Chapter 1 of this vol-
ume and the references cited there. Also see Goldstein, L.M. and Kearsey, B.N.,
Technology Patent Licensing: an International Reference on 21st Century Patent Licensing,
Patent Pools and Patent Platforms, Aspatore, 2004, 576.
92
╇ Verbeure, Chapter 1 of this volume; Ullrich, Chapter 22 of this volume.
93
╇ Cf. European Commission Communication COM (92) 445 final of 27 October 1992
on Intellectual Property Rights and Standardisation: “Standards are technical speci-
fications relating to a product or an operation, which are recognized by a large num-
ber of manufacturers and users.”
94
╇ See Lemley, M.A., ‘Antitrust, Intellectual Property and Standard Setting
Organizations’ (see http://econ.tau.ac.il/papers/applied/0109037.pdf); Hovenkamp,
H., Janis, M. & Lemley, M.A., IP and Antitrust: An Analysis of Antitrust Principles Applied
to Intellectual Property Law, Aspen Publishers Online, 2002. Also see Verbruggen, J.
and Lorincz, A., ‘Patents and Technical Standards’, in 33 IIC 2002, 125–132.
95
╇ See www.mpegla.com.
 Of thickets, blocks and gaps 407

licensees.96 Over the years, the MPEG LA model became the template
for the type of patent pools with a licensing administrator.
Patent pools may have significant benefits. The authors in the pres�
ent volume join the tenor in current literature referring to reduction
of transaction costs, elimination of stacking licences, decrease in
patent litigation and exchange of technical information.97 Aoki fur-
ther suggests that when a bundle of goods such as patents, must be
used together – i.e. goods are complements – there is economic benefit
other than reduction of transaction costs through elimination of dou-
ble �marginalization.98 It is also underlined that patent pools may offer
an interesting instrument for government policy: it is better to encour-
age companies to establish a pool than to force them into a compul-
sory licence scheme.99 However, non-voluntary patent pools have been
established in the past as well.100
Pools may equally hide some risks. The various authors confirm
reported dangers, such as the shielding of invalid patents101 or entail
the risk of inequitable remunerations. The major criticism, however, is
the danger of covering for a cartel and the subsequent anticompetitive
effects this would have.102 The risk of improper collusion may already
be present during the standard-setting process.103
In an attempt to deal with any potential anticompetitive effects of
multiparty licensing agreements, such as patent pools, the US antitrust
agencies and the European Commission have established guidelines.
Close examination of foregoing guidelines, regulations and related
decisions provides valuable information on the attitude of the US and

96
╇ Horn, Chapter 2 of this volume.
97
╇ Verbeure, Chapter 1 of this volume; Correa, Chapter 3 of this volume; Horn,
Chapter€2 of this volume; Ullrich, Chapter 22 of this volume.
98
╇������������������������������������������������������������������������������������Aoki, R., ‘Access to genetic patents and clearinghouse models. An economic perspec-
tive’, Chapter 23 of this volume. Also see Verbeure, Chapter 1 of this volume.
99
╇ Merges, ‘Institutions for Intellectual Property Transactions: the Case of Patent
Pools’, 2001. Also see Verbeure, Chapter 1 of this volume.
100
╇����������������������������������������������������������������������������������For example, in 1917 an aircraft pool was formed that encompassed almost all air-
craft manufacturers and was crucial to the US entering World War I, see Dykman,
H.T., ‘Patent Licensing within the Manufacturer’s Aircraft Association’, 46
Journal of the Patent Office Society, 1964, 646. Also see Verbeure, Chapter 1 of this
volume.
101
╇ Carlson, S.C., ‘Patent Pools and the Antitrust Dilemma’, 16 Yale Journal on
Regulation, 1999, 359–399. See Correa, Chapter 3 of this volume; Verbeure, Chapter
1 of this volume.
102
╇ Carlson, ‘Patent Pools and the Antitrust Dilemma’, 1999; Merges, ‘Institutions
for Intellectual Property Transactions: the Case of Patent Pools’, 2001; Shapiro,
‘Navigating the Patent Thicket’, 2001. Also see Ullrich, Chapter 22 of this volume
and Verbeure, Chapter 1 of this volume.
103
╇ Verbeure, Chapter 1 of this volume and the references cited there.
408 Geertrui Van Overwalle

European authorities towards patent pools. In short, Verbeure points

out that patent pools should avoid creating anticompetitive restraints
and will most probably be accepted if they meet the following con-
ditions: the patents taken up by the pool are valid, the technologies
�covered are essential and complementary, the licensing terms are fair,
reasonable and non-discriminatory, and the licences are non-exclu-
sive.104 According to Ullrich, however, the current criteria are most
ambiguous and ambivalent. First, they are based on an artificial sep-
aration of the different layers of pool-building agreements, which are
assessed in isolation.105 Second, they are focused on a scrutinous exam-
ination of the patents at stake, rather than on the relationships of rivalry
between patent owners involved. He concludes that the current frame-
work exemplifies a rather ‘reductionist’ analysis and tends to become
a formal, rather loose test, unless it is construed strictly in accordance
with its purpose, which is “to allow only pools supporting access to
some crucial (technological) input or material, or to some unavoidable
gateway or facility, that cannot be obtained otherwise, in particular
not by way of technological circumvention”.106 What obscures a rigid
approach even more, according to Ullrich, is the basic dilemma author-
ities face between efficiency (the bigger the patent thicket, the bigger
the need for a pool and – eventually€– a big pool) and competition (the
bigger the pool, the bigger the market power, the bigger the concern for
restrictive effects).

Setting up a pool is a long and complex process. A first question,

discussed by Verbeure and Ullrich, is when to start preparing for a
pool. Pools often are the result of joint research and development by
the pool partners, and cannot easily be transformed ex post in mere
clearing arrangements.107 That is why it might be wise, as has been
�demonstrated in the SARS corona virus pool by Correa,108 to start set-
ting up a pool early on in the process.
Another problem brought to the fore by Verbeure, Goldstein and
Horn, is that of so-called ‘holdouts’. A holdout is a patent owner who,

104
╇ See Verbeure, Chapter 1 of this volume. Also see, Correa, Chapter 3 of this �volume;
Horn, Chapter 2 of this volume. Whether this means only open and non-�discriminatory
access by third parties to the acquisition of licenses, or also their admission to the pool
as members is not quite clear, see Ullrich, Chapter 22 of this volume.
105
╇ Ullrich, Chapter 22 of this volume.
106
╇ Ibid. Biotechnology may offer some examples, in particular in the field of gene
research for medical purposes.
107
╇ Ibid.; Verbeure, Chapter 1 of this volume.
108
╇ Correa, Chapter 3 of this volume.
 Of thickets, blocks and gaps 409

by choice or inadvertedly, gets left out.109 The former, a so-called pur-

poseful holdout, does not want to contribute an essential patent to the
patent pool and has the ability to hold up the formation of the pool.
Horn110 and Goldstein111 believe that the holdout problem is uniquely
acute in the field of genetics. In terms of solution, Verbeure points to a
grant-back clause or a compulsory licence.112 In turn, Goldstein argues
that medical standards may ameliorate the holdout problem, on top of
the recent eBay decision.113,â•›114 Burk analyses the holdout phenomenon
through a totally different lens, namely the options and information
theory, and suggests that in such situations liability regimes may offer
an adequate solution.115

Transposition to genetics
The use of patent pools in biomedicine and biotechnology is in its
infancy. As yet, the patent pool concept has hardly been applied in daily
practice in the genetic field, but there are a few operational examples.
The Golden Rice pool is an instructive case in the field of agricul-
ture and a nice example of how private and public organizations, in a
combined effort, dealt with the patent thicket by creating a non-profit,
humanitarian and, therefore, an atypical patent pool.116 As Goldstein
confirms, it is indeed not to be expected that such ingenious solutions
will also be available or that the players involved will act in such smooth
unison in other, more competitive, areas of modern biotechnology.117
The SARS corona virus pool is a recent case in the biomedical field.

109
╇ George, G. D., ‘Note: What is Hiding in the Bushes? Ebay’s Effect on Holdout
Behaviour in Patent Thickets’, 13 Michigan Telecommunications and Technology Law
Review, 2007, 557–76. Here, we focus on holdouts that purposefully decide to go at
it alone.
110
╇ Horn, Chapter 2 of this volume. 111
╇ Goldstein, Chapter 4 of this volume.
112
╇ Verbeure, Chapter 1 of this volume.
113
╇ US Supreme Court, eBay, Inc. v. MercExchange, L.L.C eBay, Inc. v. MercExchange,
LLC, 126 SCt 1837, 2006
114
╇ Goldstein, Chapter 4 of this volume.
115
╇ Burk, D.L., ‘Critical analysis: property rules, liability rules and molecular futures.
Bargaining in the shadow of the cathedral’, Chapter 19 of this volume.
116
╇ Graff, G. and Zilberman, D., ‘Towards an Intellectual Property Clearinghouse for
Agribiotechnology’, 3 IP Technol. Today, 2001, 1–12; Graff, G. D., Cullen, S. E.,
Bradford, K. J., Zilberman, D. and Bennett, A. B., ‘The Public–Private Structure
of Intellectual Property Ownership in Agricultural Biotechnology’, 21 Nature
Biotechnol., 2003, 989–95; Parish, R. and Jargosh, R., ‘Using the Industry Model
to Create Physical Science Patent Pools Among Academic Institutions’, 15 J. Assoc.
Univ. Technol. Managers, 2003, 65–79. Also see Van Overwalle et al., ‘Models for
Facilitating Access to Patents on Genetic Inventions’, 2006; Verbeure et al., ‘Patent
Pools and Diagnostic Testing’, 2006. For an update on the Golden Rice pool, see
Verbeure, Chapter 1 of this volume.
117
╇ Goldstein, Chapter 4 of this volume.
410 Geertrui Van Overwalle

Correa explains that a myriad of patent applications, incorporating the

genomic sequence of the SARS corona virus, had been filed by a number
of organizations. By placing the scattered patent applications in a pool,
the interested constituencies hoped that uncertainty about ownership
could be reduced at the end of the day.118 Goldstein critically remarks
that it remains to be seen whether legal uncertainty indeed provides
an additional impetus for creating a pool.119 The Green Fluorescent
Protein (GFP) pool is sometimes also listed as a patent pool.120 Verbeure
argues, however, that upon closer analysis, the GFP pool is rather an
example of aggregation of patent rights with subsequent out-licensing
technology.121 The Single Nucleotide Polymorphisms (SNP) consor-
tium has been referred to as a pool too.122 Verbeure notes, however,
that it might rather be qualified as an IP pool, than as a proper patent
pool.123
Biopharma and genetics are usually perceived as fundamentally dif-
ferent from the electronics and telecommunications sectors, particu-
larly as the generation of standards, seen as a strong incentive for set-
ting up a patent pool, is missing.124 Both Verbeure125 and Goldstein126
evangelize that standards, in principle, may be an important trigger to
establish a pool in the genetic sector. Differing from the conventional
way standards are viewed, a standard in the genetic field could present
itself as a set of genes or mutations to be screened, which are recognized

118
╇ Correa, Chapter 3 of this volume. Also see Simon, J., ‘Dealing with Patent
Fragmentation: The SARS Patent Pool as a Model’, in G. Van Overwalle (ed.), Gene
Patents and Public Health, Brussel, Bruylant, 2007, 115–120; Verbeure, Chapter€1 of
this volume and the references cited there.
119
╇ Goldstein, Chapter 4 of this volume.
120
╇ See http://www6.gelifesciences.com/aptrix/upp00919.nsf/Content/drugscr_applic�
ations%7Edrugscr_applic_technol%7Edrugscr_gfp%7Egfp_licenses?OpenDocume
nt&hometitle=DrugScr.
121
╇ Verbeure, Chapter 1 of this volume.
122
╇ Holden, A.L., ‘The SNP Consortium: Summary of a Private Consortium Effort
to Develop an Applied Map of the Human Genome’, 26 Biotechniques Supplement,
2002, 22–4
123
╇ Verbeure, Chapter 1 of this volume. See also this chapter at p. 446.
124
╇ Organization for Economic Co-Operation and Development (OECD), Genetic
Inventions, Intellectual Property Rights and Licensing Practices, Report of a work-
shop organized by the OECD Working Party on Biotechnology, 2002 (available at
www.oecd.org/dataoecd/42/21/2491084.pdf). Also see Organisation for Economic
Co-operation and Development (OECD), Draft Guidelines for the Licensing of Genetic
Inventions, Organisation for Economic Co-operation and Development web site,
2005 (see www.oecd.org/sti/biotechnology/licensing. In the same sense, Correa,
Chapter 3 of this volume; Horn, Chapter 2 of this volume.
125
╇ Verbeure et al., ‘Patent Pools and Diagnostic Testing’, 2006.
126
╇ Ebersole, T.J., Guthrie, M.C. and Goldstein, J.A. ‘Patent Pools and Standard Setting
in Diagnostic Genetics’, 23 Nature Biotechnology, 2005, 937–8.
 Of thickets, blocks and gaps 411

by the international scientific community, or which reflect national or

international best practice guidelines for genetic testing for a �particular
disease, and which could serve as an authoritarian guidance for the
determination of essentiality.127 However, in the genetics field, stan�
dards serve the role of quality control of testing services, rather than
guaranteeing interoperability, and they are dictated by natural occur-
rence, rather than by human choice.128 This leads Verbeure to conclude
that it is not likely that such a standard could play a similar role in the
setup of a patent pool as it does for ICT. Goldstein is more optimistic
and believes that the establishment of a standard for diagnostic testing
of polymutationally correlated diseases will decrease the propensity of
the market leaders to want to go at it by themselves, i.e. to play holdout
and that most if not all diagnostic labs will still want to offer the best
test possible if it is recommended by respected medical authorities.129
Another reason for Goldstein’s optimism is the recent eBay decision of
the Supreme Court,130 which teaches that a holdout, who can no longer
automatically count on a permanent injunction, will see his leverage
decreased.131

Patent pools may be an efficient model to deal with patent thickets in

the field of diagnostics. Cases where a disease is caused by various muta-
tions in one gene, or by one or more mutations in any one of several pos-
sible genes are likely to give rise to patent thickets.132 An example case
of poly-mutational or multi-gene-based diseases relates to the diagnosis
of Hereditary Non-Polyposis Colorectal Cancer (HNPCC).133 Possibly,
overlapping patents may emerge on the genetic data necessary in testing
for HNPCC as various patent holders filed patents.134 Might a patent

127
╇ Van Overwalle, et al., ‘Models for facilitating access to patents on genetic inventions’,
200; Verbeure et al., ‘Patent Pools and Diagnostic Testing’.
128
╇ Verbeure, Chapter 1 of this volume. In the same sense, Goldstein, Chapter 4 of this
volume (“the standards are arbitrary and not functional”), (“a medical standard
informs a ‘best’ medical practice”).
129
╇ Goldstein, Chapter 4 of this volume.
130
╇ US Supreme Court, eBay, Inc. v. MercExchange, L.L.C eBay, Inc. v. MercExchange,
LLC, 126 SCt 1837, 2006.
131
╇ Goldstein, Chapter 4 of this volume.
132
╇ Shapiro, ‘Navigating the Patent Thicket’, 2001; Scherer, F. M., ‘The Economics of
Human Gene patents’, 77 Acad. Med., 2002, 1348–1367. Also see Van Overwalle,
et al., ‘Models for facilitating access to patents on genetic inventions’, 2006 and
Verbeure et al., ‘Patent Pools and Diagnostic Testing’, 2006.
133
╇ For details, see Verbeure, Chapter 1 of this volume.
134
╇ European patent applications have been identified for example for MSH2,
MLH1, PMS2 and MSH5. Patent holders include Human Genome Sciences, John
Hopkins University, Oregon Health Sciences University and Dana-Farber Cancer
Institute.
412 Geertrui Van Overwalle

thicket arise, an HNPCC pool encompassing the essential gene patents

could help to eliminate the thicket and render proprietary genomic data
more accessible for use. In line with poly- or multi-gene-based diseases,
other developments are abound in the field of genetic diagnostics that
may give rise to a patent thicket – to name only two, pharmacogenom-
ics and DNA array technology.135 When it comes to the totally different
field of drug development, however, Horn is somewhat more reluctant
and refers to targets, such as signalling protein or cellular surface pro-
tein pathways for purposes of developing agonists to stimulate desirable
reactions or antagonists to block undesirable ones.136
In further refining the problem and finding the right solution,
Verbeure has suggested to distinguish between vertical and �horizontal
patent thickets.137 Following this distinction, we conclude that the
�optimal patent pool model in genetics might well be a patent �platform
where individual patent pools are narrowly defined around single
genes comprising vertically oriented patents, thereby providing access
to �horizontally oriented thickets.138 However, it will take quite a while
before such a platform may be operationalized. Meanwhile, efforts
should concentrate on patent pools set up around single genes or gene
panels. Patent pools are of no help in the case of one – mainly Â�exclusively
licensed – blocking patent.139

Clearinghouses
Somewhat lesser attention has been paid to another new licensing
arrangement: the clearinghouse. Does the clearinghouse model make

135
╇ See Van Overwalle et al., 2006; Verbeure et al., ‘Patent Pools and Diagnostic
Testing’, 2006; Verbeure, Chapter 1 of this volume; Ebersole et al., ‘Patent Pools and
Standard Setting in Diagnostic Genetics’, 2005. Goldstein claims he has anecdotal
evidence from commercial enterprises who stopped further work in the field of gene
microarrays and where the existence of one or more unlicensable gene patents have
prevented the production and commercialization of an array containing multiple
genetic sequences useful for the diagnosis or evaluation of patients’ gene profiles
(Goldstein, Chapter 4 of this volume).
136
╇ Horn, Chapter 2 of this volume, with reference to Grassler F. and Capria, M.A.,
‘Patent Pooling: Uncorking a Technology Transfer Bottleneck and Creating Value in
the Biomedical Research Field’, 9 Journal of Commercial Biotechnology, 2003, 115.
137
╇ Verbeure, Chapter 1 of this volume.
138
╇ Verbeure, Chapter 1 of this volume. For the notion of patent platform, see
Verbeure, Chapter 1 of this volume. Also see Bekkers et al., ‘Patent Pools and Non-
Assertion Agreements: Coordination Mechanisms for Multi-Party IPR Holders
in Standardization’, 2006; Goldstein and Kearsey, Technology Patent Licensing:
an International Reference on 21st Century Patent Licensing, Patent Pools and Patent
Platforms, 2004, 67–79.
138
╇ Goldstein, Chapter 4 of this volume; Verbeure, Chapter 1 of this volume.
 Of thickets, blocks and gaps 413

proprietary genetic inventions more easily accessible for further use?

The authors in Part II and V have examined clearinghouses from a
variety of approaches to test whether this model might resolve problems
resulting from intense gene patenting. Let us take a closer look at their
findings.

General concept and framework

The term clearinghouse is derived from banking institutions and refers
to the mechanism by which cheques and bills are exchanged among
member banks to transfer only the net balances in cash. Nowadays,
as Van Zimmeren points out,140 the concept has acquired a broader
meaning and refers to any mechanism by which providers and users of
goods, services and/or information are matched.141 The key feature of
any clearing mechanism is matchmaking between providers and users;
what exactly is exchanged (goods, services, information etc.) is of sec-
ondary significance.
Already from the very beginning of scholarly reflection on clear-
inghouses and their appropriateness in a genetic context, categoriza-
tions have been put forward.142 Van Zimmeren et al. have built fur-
ther on this literature and refined the classification on the basis of
the objectives pursued and services offered in a clearinghouse dealing
with proprietary genetic inventions.143 Van Zimmeren et al. have intro-
duced a basic distinction between clearinghouses merely aiming at
facilitating ‘access’144 to (proprietary) inventions, and clearinghouses
aiming at facilitating ‘access and (standardized) use’ of (proprietary)
inventions. Within this basic division, various subtypes may be dis-
cerned. Clearinghouses facilitating access include information clear-
inghouses and technology-exchange clearinghouses: the first provide
‘simple’ information related to technology or patents and the latter
additionally provide information on the availability of technologies
for licensing. Both models of clearinghouses may operate free or for

140
╇ van Zimmeren, Chapter 5 of this volume. Also see Van Overwalle, et al., ‘Models for
facilitating access to patents on genetic inventions’, 2006.
141
╇ Krattiger A.F., ‘Financing the Bioindustry and Facilitating Biotechnology Transfer’,
1 IP Strategy Today, 2004, 1–45.
142
╇ Ibid.
143
╇ See van Zimmeren, E., Verbeure, B., Matthijs, G. and Van Overwalle, G., ‘A
Clearinghouse for Diagnostic Testing: the Solution to Ensure Access to and Use
of Patented Genetic Inventions?’, Bulletin of the World Health Organization, 2006,
352–9. Also see van Zimmeren, Chapter 5 of this volume.
144
╇ Aoki also applies this same distinction, although she prefers to use the term
‘exchange’, see Aoki, Chapter 23 of this volume.
414 Geertrui Van Overwalle

a fee.145 Clearinghouses focusing on access and use encompass open

access clearinghouses, standard licences clearinghouses and royalty
collection clearinghouses: the first offers access on a royalty-free, open
access basis; the second does so via standard licences and the third
offers collection and distribution of royalties, monitoring and enforce-
ment, and dispute resolution on top.146
Examples of information clearinghouses vary from general search
engines, such as Google,147 to specialized biodiversity informa-
tion networks, such as the Global Biodiversity Information Facility
(GBIF).148 Examples of information clearinghouses in the patent area
include Espacenet149 and Google Patent Search,150 which are free, and
Delphion151 and Micropatent,152 which are fee-based. Examples of tech-
nology-exchange clearinghouses may include global platforms, such as
BirchBob153 and yet2.com.154 As van Zimmeren and Avau illustrate,
BirchBob is an Internet-based platform that brings together offers and
demands for innovations, and provides services dedicated to finding and
facilitating contacts between technology holders and technology seek-
ers.155 Examples of technology-exchange clearinghouses in the field of
healthcare include specific healthcare technology-exchange platforms
such as Pharmalicensing156 and TechEx.157 These portals provide online
partnering support enabling companies in the biopharmaceutical and
biomedical industry to find licensing partners and conclude licens-
ing contracts. A well-known example of an open access clearinghouse
is the SNP Consortium.158 An example of a standard licence scheme
is offered by Science Commons.159 Science Commons examines stan�
dard licensing formats to facilitate wider access to scientific subject mat-
ter, as Creative Commons has been doing in the area of copyrighted

145
╇ Van Zimmeren et al., ‘A Clearinghouse for Diagnostic Testing’, 2006. Also see van
Zimmeren, Chapter 5 of this volume.
146
╇ Merges, ‘Contracting into Liability Rules’, 1996. Also see van Zimmeren, Chapter€5
of this volume.
147
╇ See www.google.com.
148
╇ See www.gbif.org. Also see Edwards, J.L., ‘Case 3. The Global Biodiversity
Information Facility. An example of an information clearinghouse’, Chapter 6 of
this volume.
149
╇ www.ep.espacenet.com. 150╇ www.google.com/patents.
151
╇ www.delphion.com. 152╇ www.micropatent.com/static/index.htm.
153
╇ www.birchbob.com. 154╇ www.yet2.com.
155
╇ See van Zimmeren, E. and Avau, D., ‘Case 4. BirchBob: An example of a technology
exchange clearinghouse’, Chapter 7 of this volume.
156
╇ www.pharmalicensing.com. 157
╇ www.techex.com.
158
╇ See also the subsection ‘Categorisations and Definitions. What’s in a Name?’ of this
chapter, p. 446.
159
╇ http://sciencecommons.org.
 Of thickets, blocks and gaps 415

material.160€ Classical€ examples of royalty collection clearinghouses

include copyright collection societies, such as the American Society
of Composers, Authors and Publishers (ASCAP),161 or the Belgian
(SABAM),162 French (SACEM),163 United Kingdom (ALCS) or German
(GEMA)164 Societies. Typical for this model, as Corbet underlines, is
that the owners of rights authorize the collec�tive management society
to administer their rights and negotiate with users, deliver licences, col-
lect fees and distribute them, and monitor unlicensed uses.165 The most
common method for collecting the fees is the ‘blanket licence’.166
Clearinghouses do have certain benefits, but may exhibit shortcom-
ings and have certain disadvantages when applied in the patent area.
At a cursory glance, Dedeurwaerdere concludes that a clearinghouse
is essentially an information sharing device which contributes to the
reduction of transaction costs and facilitates the enforcement of the
�formal and informal rules which are adopted.167 Aoki finds that clear-
inghouses facilitating access are advantageous because they reduce
transaction costs, and that clearinghouses facilitating access and use are
interesting because they provide access to a large catalogue of IP.168

In an attempt to sketch an in-depth and nuanced picture, van

Zimmeren systematically weighs the pros and cons of the various clear-
inghouse subtypes against their potential to deal with three recurrent
obstacles: transactions costs, royalty stacking and blocking patents from
non-cooperative patent holders. Other authors complement this image.
Information clearinghouses can be extremely valuable in view of
their potential to disclose data and share information, and thus serve
political and scientific interests, Edwards indicates.169 Van Zimmeren,
however, is rather sceptical in view of the restricted potential to offer a
remedy for the recurrent obstacles.170
Technology exchange clearinghouses are useful as they offer a basis
to evaluate whether a technology is available for deployment and assist

160
╇ http://creativecommons.org. 161
╇ www.ascap.com. 162
╇ www.sabam.be.
163
╇ www.sacem.fr. 164
╇ www.gema.de.
165
╇ See Corbet, J., ‘Case 7. The collective management of copyright and neighbouring
rights. An example of a royalty collection clearinghouse’, Chapter 10 of this volume.
166
╇ Under a ‘blanket licence’ the user is entitled to make use of any or all works or other
protected material in the organization’s repertoire for the purpose, and within the
period indicated in the license.
167
╇ Dedeurwaerdere, Chapter 24 of this volume.
168
╇ Aoki, Chapter 23 of this volume. In the same line, van Zimmeren, Chapter€5 of this
volume.
169
╇ Edwards, Chapter 6 of this volume.
170
╇ van Zimmeren, Chapter 5 of this volume.
416 Geertrui Van Overwalle

in connecting providers and users of that technology, as Bennet and

Boettiger suggest.171 Van Zimmeren agrees but notes that technology
clearinghouses do not offer a remedy for the aforementioned obstacles
either.172
Open source clearinghouses tackle the problem of transaction costs
and royalty stacking pretty well, stemming from the fact that the inven-
tions are available at no cost. However, as van Zimmeren points out,
the overall success of this model appears to be rather limited, as this
scheme does not offer any opportunity to recoup high research and
development investments preponderant in genetic research.173
Standard licence clearinghouses have important benefits for science
policy, as delays or inability/failure to conclude negotiations may result
in lost time, productivity and research opportunities, as we learn from
Nguyen.174 Van Zimmeren175 and Aoki176 take the view that standard
clearinghouses significantly reduce transaction costs, whereas Spence
doubts this suggestion and encourages the use, not of standard licence
agreements, but of standard clauses which can be readily assembled into
a variety of alternative agreements.177
Royalty clearinghouses can achieve a reduction of transaction costs,
as they ease the bargaining process and lead to decline in enforce-
ment costs resulting from the collection of royalties, in the view of van
Zimmeren and Corbet.178 However, van Zimmeren also voices some
criticism, hereby sided by Spence. First, the pricing of the total fee would
be far from straightforward179 and the royalty clearinghouse might give
rise to certain competition law problems. Second, only small players

171
╇ See Bennett, B. and Boettiger, S., ‘Case 5. The Public Intellectual Property Resource
for Agriculture. A standard license public sector clearinghouse for agricultural IP’,
Chapter 8 of this volume.
172
╇ van Zimmeren, Chapter 5 of this volume.
173
╇ Ibid.
174
╇ See Nguyen, T., ‘Case 6. The Science Commons Material Transfer Agreement
Project. A standard license clearinghouse?’, Chapter 9 of this volume.
175
╇ van Zimmeren, Chapter 5 of this volume.
176
╇ Aoki, Chapter 23 of this volume.
177
╇ Choosing and picking clauses takes place in much the same way that software sub-
routines and modules can be assembled into functionally more comprehensive soft-
ware systems that are suited for particular applied tasks for licenses, see David, P.€A.
and Spence, M., Towards Institutional Infrastructures for E-Science: The Scope of the
Challenge Oxford, Oxford Internet Institute Research Report No. 2, 2003, 98.
178
╇ van Zimmeren, Chapter 5 of this volume. Similarly, Corbet, Chapter 10 of this �volume:
“It is generally accepted that collective management of copyrights and neighbouring
rights is not only useful for the rights owners but is also to the advantage of users, who
would otherwise be confronted with unbearable transactional costs.”
179
╇ Spence, M., ‘Comment on the conceptual framework for a clearinghouse Â�mechanism’,
Chapter 11 of this volume.
 Of thickets, blocks and gaps 417

might be willing to join the clearinghouse and there may be too little
incentive for the holders of the most valuable patents to join, resulting
in an ‘asymmetric’180 or ‘incomprehensive’181 library of patents. Third,
the exchange of complementary know-how might be hampered.182
Fourth, this type of clearinghouse can no more than the others force an
unwilling patent holder to participate, although van Zimmeren believes
that a reciprocal positive comity or a grant-back clause may be imposed
in the standard licences to bring the unwilling patent holder into the
scheme, even though competition law requires caution here.183 Last but
not least, not to be neglected is the fact that the administration of roy-
alty collecting clearinghouses would be expensive and require consid-
erable expertise.184

Examining clearinghouses through property theory, leads

Dedeurwaerdere to argue that a clearinghouse is not linked to any spe-
cific ownership regime: it can be part of the reconstructed commons (as
in the case of the SNP Consortium), the exclusive ownership regime (as
in the case of patent clearinghouses), or be a hybrid of both (as in the
model of PIPRA clearinghouse)185.
Looking at clearinghouses from a management perspective, a clear-
inghouse could be administered either as a voluntary scheme or as a
statutory framework on a compulsory basis. There is a need to consider
incentives that trigger the voluntary participation of the stakeholders in
the clearinghouses.

Transposition to genetics
Various national and international advisory bodies and experts have
suggested that a clearinghouse should be set up in the field of patents
related to genetic inventions in order to solve the problem of patent
thickets.186 Patent clearinghouses have not widely been applied in daily
practice in the genetic field yet, but there are a few examples.
An example of an information clearinghouse focusing on biodiversity
is the Global Biodiversity Information Facility (GBIF).187 As Edwards
explains, GBIF collects primary scientific biodiversity data from a

180
╇ van Zimmeren, Chapter 5 of this volume.
181
╇ Spence, Chapter 11 of this volume.
182
╇ van Zimmeren, Chapter 5 of this volume; Spence, Chapter 11 of this volume.
183
╇ van Zimmeren, Chapter 5 of this volume.
184
╇ Ibid.; Spence, Chapter 11 of this volume. 185
╇ See p. 446–47.
186
╇���������������������������������������������������������������������������������������� See Van Overwalle, et al., ‘Models for facilitating access to patents on genetic inven-
tions’, 2006. Also see Nuffield Council on Bioethics, The Ethics of Patenting DNA: A
Discussion Paper, Nuffield Council on Bioethics, 2002, 109 pp.
187
╇ See www.gbif.org. Also see Edwards, Chapter 6 of this volume.
418 Geertrui Van Overwalle

worldwide network of data providers and indexes the data allowing

users to search all the information at once for free, instead of having
to go individually to each data provider’s site. The data themselves, as
well as the related IP remain with the data providers.188 Although dif-
ferent terms are in use – Edwards refers to a ‘distributed network of
information’,189 whereas others speak of ‘a federated data repository’190€–
it is clear that GBIF can be qualified as a free information clearing-
house. GBIF is not a technology-exchange clearinghouse, as it does not
provide any brokerage services to link data providers with users. Nor
is GBIF an open access clearinghouse, as it provides information on a
free and open access basis, but cannot guarantee free use of that data,
as the IP remains with the provider and prior consent and/or remuner-
ation might be needed for the use of the data. A specific biotechnology
information patent clearinghouse is Patent Lens, a fully text-searchable
database of US, European, Australian and international agricultural
and life-science patents, established in the framework of BiOS.191 An
additional information clearinghouse for open source biotechnology is
BioForge.192
A specific biotechnology technology exchange platform is the Public
Intellectual Property Resource for Agriculture (PIPRA).193 As Bennett
and Boettiger explain, a major activity of PIPRA is the provision of
information on public/non-profit patented agricultural technologies
and on the licensing status of each technology. PIPRA also facilitates
bringing scientists and technology transfer offices together, which is
made possible by its collaborative working relationships with the owners
of the technologies.194 These characteristics lead Bennet and Boettiger

188
╇ Ibid. 189╇ Ibid.
190
╇ Reichman, J.H. and Uhlir, P.F. ‘A Contractually Reconstructed Research Commons
for Scientific Data in a Highly Protectionist Intellectual Property Environment’, 66
Law and Contemporary Problems, 2003, 315–462.
191
╇ www.bios.net/daisy/bios/patentlens.html. For more details, see Berthels, N. ‘Case 8.
CAMBIA’s Biological Open Source Initiative (BiOS)’, Chapter 13 of this volume.
192
╇ For more information on BioForge, see Berthels, Chapter 13 of this volume.
193
╇ www.pipra.org.
194
╇ See Bennett and Boettiger, Chapter 8 of this volume. Dedeurwaerdere suggests
that exactly this investment of time and money in building a good reputation and
extended confidence has played an important role in the case of PIPRA, where the
reputational benefits gained by creating facilitated access to gene technologies for
developing nations outweigh the market benefits to be expected from this niche
(see Dedeurwaerdere, Chapter 24 of this volume, with reference to Rai, A. K.,
‘Proprietary Rights and Collective Action: The Case Of Biotechnology Research
With Low Commercial Value’, in K. Maskus and J. Reichman (eds.), International
Public Goods and Transfer of Technology, Cambridge, Cambridge University Press,
2005, 288–306).
 Of thickets, blocks and gaps 419

to believe that PIPRA is an information clearinghouse,195 whereas van

Zimmeren qualifies these PIPRA activities as a technology exchange
clearinghouse.196 An additional activity within PIPRA is the design of
research tools in its own laboratories, and the distribution thereof to the
broader research community on the basis of pre-negotiated licences to
the pooled set of proprietary technologies incorporated in the research
tool vectors. This activity, leads Bennet and Boettiger to conclude that
PIPRA is also a standard licence clearinghouse,197 which is debatable.198
Anyhow, it is beyond doubt that PIPRA “fundamentally [is] an IP clear-
inghouse that operates on several levels”.199
The key example of an open access clearinghouse in genetics is the
SNP Consortium, a non-profit entity aiming to identify and collect
single nucleotide polymorphisms (SNPs) and to create and make freely
publicly available the SNP map of the human genome, without any pro-
prietary rights.200,â•›201
An example of a standard licensing clearinghouse facilitating access
to and use of proprietary genetic inventions is somewhat difficult to pic-
ture. As Nguyen points out, a major initiative within Science Commons
is the Material Transfer Agreement (MTA) Project, which focuses on
the transfer and (re)use of unique tangible research resources, such
as biological materials and reagents, by setting up an infrastructure
for listing, locating and licensing such materials, by way of standard
�contracts for intra-academic material transfer and transfer between
academia and industry.202 The MTA project within Science Commons

195
╇ See Bennett and Boettiger, Chapter 8 of this volume, more in particular p. 140,
where the above services are described at length.
196
╇ van Zimmeren, Chapter 5 of this volume. See also pp. 446–47.
197
╇ Bennett and Boettiger, Chapter 8 of this volume.
198
╇ These activities cannot justify to qualify PIPRA as a standard clearinghouse, as a
it misses out on one of the main characteristics of a clearinghouse, namely to act
as an intermediary platform to exchange services between (a variety of) providers
and (a variety of) users. In the PIPRA model there is a direct exchange between one
provider and a variety of users. Might PIPRA start offering more than just its own
technology through standard licenses to the users, it might probably be qualified as
a standard license clearinghouse. See also pp. 446–47.
199
╇ See Bennett and Boettiger, Chapter 8 of this volume.
200
╇ http://snp.cshl.org. For more details, see Verbeure, Chapter 1 of this volume; van
Zimmeren, Chapter 5 of this volume.
201
╇ For the very reason that the SNP initiative does not employ its patents to enforce a
specific license behaviour one would be inclined to say that the SNP Consortium
may well be termed ‘open access’, but does not qualify as ‘open source’. (On the
imporÂ�tance of patents in an open source context, see the section on ‘credible com-
mitment’ in Hope, J., ‘Open source genetics. Conceptual framework’, Chapter€12 of
this volume).
202
╇������������������������������������������������������������������������������������See Nguyen, Chapter 9 of this volume. The vast majority of the materials are unpat-
ented and the basis for the agreements is located in traditional property law.
420 Geertrui Van Overwalle

can definitely be qualified as a standard licensing clearinghouse, but

one focusing on access to biological material, rather then on facilitating
access to patents.
At present no working example of a royalty collection clearinghouse
in genetics exists, as the Global Bio-Collecting Society (GBS) did not
materialize.203 The GBS was designed to be an efficient, fair and equi�
table model for the exchange of indigenous knowledge between kno�
wledge holders (indigenous groups) and knowledge users (the life-science
industry) in the commerce of biodiversity. Although the GBS model was
constructed to encourage arrangements between merely non-IP holders
(indigenous groups) and IP holders, the concept could be applied to the
more classical IP holder (patentee) and IP user (licensee) situation.204

What type of clearinghouse should be ultimately contemplated in

genetics to facilitate access and use of patented genetic inventions?
Will a standard licensing clearinghouse do the job? According to van
Zimmeren, a differentiated and standardized licence regime might
meet the need to decrease search and bargaining costs and prevent roy-
alty stacking in an adequate manner in genetic diagnostics.205 Spence
is very critical about the idea of standardized clearinghouses in genet-
ics and argues it may be impossible to develop an appropriate library
of standardized licences for all but a limited range of uses of a limited
range of inventions, such as patented DNA sequences and mutations,
and a handful of commonly used diagnostic tools.206 However, this cri-
tique indirectly amounts to an approval of van Zimmeren’s plea for a
standardized licence regime in genetic diagnostics.
Will a clearinghouse encompassing royalty collection, disbursement
accounting, monitoring and enforcement bring an optimal solution?
Van Zimmeren points out that some of the peculiar characteristics of
current copyright societies cannot be transposed to the patent arena as
such and recommends further reflection on the relation between the
society and its members (e.g. singers) (more specifically the role of the
society to represent members’ interests vis-à-vis the users and act as
trustees, rather than proceeding as an independent intermediary)207

203
╇ Drahos, P., ‘Indigenous Knowledge, Intellectual Property and Biopiracy: Is a Global
Bio-Collecting Society the Answer?’, 20 European Intellectual Property Review, 2000,
245–50.
204
╇������������������������������������������������������������������������������������Van Overwalle, et al., ‘Models for facilitating access to patents on genetic inven-
tions’, 2006, 146; van Zimmeren, Chapter 5 of this volume.
205
╇ van Zimmeren, Chapter 5 of this volume.
206
╇ Spence, Chapter 11 of this volume.
207
╇ van Zimmeren, Chapter 5 of this volume. In the same sense, Spence, Chapter€11 of
this volume.
 Of thickets, blocks and gaps 421

and on the peculiar relation between the society and its users (e.g. radio-
�
stations) (more in particular the use of so-called ‘blanket licences’
whereby the users acquire unlimited access to the repertoire of the
members by a single licence for a fixed royalty, 208 and the transfer of
the rights of the right holders to the society in an exclusive and defini-
tive manner209). Van Zimmeren concludes that the time is not ripe yet
for a patent royalty collection clearinghouse with an elaborate package
of services.210 Spence claims that any analogy of a patent clearinghouse
and a copyright collecting society is very inexact and false, as there
are too many differences in purpose and context.211 He argues that a
one-stop-shop is not only unachievable, but also potentially undesir-
able, as clearinghouses may even exacerbate, rather than relieve cur-
rent problems.212
The institutional and managerial make up of a patent clearinghouse
for genetics may take different forms. It could be established as a neu-
tral public agency or as a private initiative, on a non-for-profit or profit
basis, on a national, regional, international or nodal scale, and as a
voluntary scheme or a statutory framework on a mandatory basis. Van
Zimmeren favours private initiatives or public–private partnerships
over a statutory, compulsory regime. Spence argues that the issue here
is whether the clearinghouse would operate “to squeeze as much return
as it could” or attempt “to fulfil a public duty by maximizing activity in
the biomedical sciences”.213
In conclusion, the establishment of a fully fledged patent royalty col-
lection clearinghouse is probably ‘too big a leap forward’ for the time
being, as van Zimmeren remarks. Following the positive evaluation of
standard clearinghouses in genetic diagnostics, major efforts should
probably be directed in the coming years towards setting up patent
standard clearinghouses in genetic diagnostics and tuning them to the
varied needs of this branch of genetics, as well as to the characteris-
tics of the biotech business sector, while continuing further study of
the patent royalty collection clearinghouse, possibly in a wider field of
application. The ultimate touchstone for an acceptable clearinghouse –
whatever its shape and function – will be the way in which it Â�facilitates

208
╇ van Zimmeren, Chapter 5 of this volume. 209
╇ Ibid. 210╇ Ibid.
211
╇ To name only one: it is pretty clear that gene patents are most frequently for upstream
inventions, while copyright usually protects works that are finished products; if a
collecting society wrongly prices a work, at most a particular use of the work is frus-
trated; for a gene patent, a whole project may be frustrated and technical progress
hindered – see Spence, Chapter 11 of this volume.
212
╇ Ibid.
213
╇ If experience of the copyright collecting societies is any guide at all, the first objec�
tive is more likely.
422 Geertrui Van Overwalle

access to and use of patented genetic inventions in a commercially

sustainable way, while responding to concerns on equitable access to
healthcare.

Open source models

Another model to deal with patent proliferation and fragmentation and
opaque and complex patent landscapes is open source. Is open source
indeed a model that facilitates cumulative technology development by
removing IP-related barriers and facilitate freedom to operate? Does
open source maximize access and use of proprietary genetic inventions?
The authors in Parts III and V have explored open source in depth to
verify whether this model indeed offers a solution of the current prob-
lems in patent law.

General concept and framework

The term ‘open source’ has several layers of meaning. In her concept
paper, Hope refers to a set of licensing criteria to define open source. A
licence is open source if “it allows anyone, anywhere, for any purpose, to
copy, modify and distribute the software (where distribution takes place
either for free or for a fee) without having to pay royalties to the copy-
right owner”,214 it being understood that the software program includes
source code.215 According to Rai, emphasizing the licensing component
is “excessively formalistic”.216 Rather than referring to the legal architec-
ture and the details of licences to characterize open source, she prefers to
point to a mode of production, centering around “open and Â�collaborative

214
╇ Hope, Chapter 12 of this volume with reference to Rosen, L., Open Source Licensing:
Software Freedom and Intellectual Property Law, New Jersey, Prentice Hall, 2004.
As to distribution, the Open Source Definition provides the following: “1. Free
Redistribution: The license shall not restrict any party from selling or giving away
the software as a component of an aggregate software distribution containing pro-
grams from several different sources. The license shall not require a royalty or other
fee for such sale” (see http://opensource.org/osi3.0/node/4).
215
╇ As to source code, the Open Source Definition provides the following: “2. Source
Code. The program must include source code, and must allow distribution in source
code as well as compiled form. Where some form of a product is not distributed
with source code, there must be a well-publicized means of obtaining the source
code for no more than a reasonable reproduction cost preferably, downloading via
the Internet without charge. The source code must be the preferred form in which a
programmer would modify the program. Deliberately obfuscated source code is not
allowed. Intermediate forms such as the output of a preprocessor or translator are
not allowed.” (see http://opensource.org/osi3.0/node/4).
216
╇ Rai, A.K., ‘Critical commentary on ‘open source’ in the life sciences’, Chapter€15 of
this volume.
 Of thickets, blocks and gaps 423

research”.217 Taubman recognizes that the call for open source can refer
to both approaches: “licensing structuresâ•›…â•›g ranting access on the con-
dition of reciprocal access” (= open source as a model or template), as
well as “a general pattern for structuring networks ofâ•›…â•›researchers”
(=€open source as a metaphor).218
Whatever the definition selected, the phrase ‘open source’ as applied
to patents results in a kind of misnomer, as an essential function of the
patent system is to ensure openness in the sense that the information
about the invention (cf. the ‘source code’) is made available through
disclosure or deposit (of physical specimens of micro-organisms).219
Rather does the term ‘open source’ in a patent context refer to a certain
philosophy of access, improvement, production and public use.
‘Open source’ software should be distinguished from ‘free’ software.
The term ‘free’ software refers to the fact that the technology is publicly
available or accessible without restraint upon modification, exami�nation
or redistribution220 without payment of royalties to the licensor,221 not
necessarily in the sense that a licensor cannot sell a product making use
of open source.222 Because of the confusion which may arise from the
term ‘free’, it has been suggested to abandon the term.
Open source is characterized by three essential elements in the
�opinion of Hope, namely (1) credible commitment, (2) competition
and, optionally, (3) copyleft. Credible commitment means that to be
open source, a technology must be protected by IP or other propri-
etary rights and distributed on terms that are perceived to be legally
enforceable.223 As various observers have remarked, this is by far the
most striking€ – and unexpected – feature of the open source model:
open source is based on IP, in order to ensure adherence to the terms
of the licence.224 A technology that is made available under the open

217
╇ Rai, ‘Open and Collaborative Research: A New Model for Biomedicine’, 2005, 131.
A model is open – and Mertonian – in the sense that “scientists work openly without
secrecy and the usual sorts of exclusionary proprietary rights”; a model is collabora-
tive – and goes beyond Merton – if it requires that “scientists [to] work closely with
others outside their own lab or small firm”. As Rai points out, the term ‘open and
collaborative’ was invoked in a letter to the WIPO (available at www.cptech.org/ip/
wipo/kamil-idris-7july2003.pdf), but does not specify the terms.
218
╇ Taubman, Chapter 16 of this volume. Taubman refers to two additional levels of
meaning, more in particular open source as a cultural community (open source as
a meme) and open source as affirmation of an inherent value in certain behaviour
(open source as a badge of ethical approval).
219
╇ Boettiger, S. and Burk, D., ‘Open Source Patenting’, 1 JIBL, 2004, 221; Taubman,
Chapter 16 of this volume.
220
╇ Boettiger and Burk, ‘Open Source Patenting’, 2004, 223.
221
╇ Hope, Chapter 12 of this volume. 222
╇ Ibid. 223╇ Ibid.
224
╇ See Yochai Benkler, ‘Coase’s Penguin, Or, Linux and the Nature of the Firm’, 112
Yale L.J., 2002, 369–446; Rai, ‘Open and Collaborative Research: A New Model
424 Geertrui Van Overwalle

source model is indeed not in the public domain, 225 but is owned by
the licensor, who makes a legally enforceable promise via the licence
agreement not to interfere with others’ freedom to use, improve or
circulate the technology 226 and thus not to lock them in a web of IP.
Competition refers to a level playing field between the licensor and
the licensees of open source technologies with respect to the legal
freedom to use and commercialize both the technology itself and any
downstream innovations.227 In that regard, an open source licence may
not impose field-of-use or territorial restrictions, nor may it prevent
a licensee to start a new branch of collaborative development (‘fork
the code’). Copyleft imposes an obligation on the licensee to make
any downstream innovations that it chooses to distribute beyond the
boundaries of its own organisation available under the same terms as
the original technology. 228
Open source licences can be divided into two categories. A first sub-
set includes licences that disclose source code but impose few if any
requirements on recipients.229 A second subset pertains to ‘copyleft’
licences. A licence is ‘copyleft’ if it carries the additional obligation to
make improvements to the software available to other users on the same
open source terms as the recipients received it.230
The archetypal open source copyleft licence is the General Public
License (GPL), originally written by Richard Stallman in 1989 to
develop a complete Unix-like operating system in the framework of
the GNU project, launched in 1984.231 The GPL was later adopted
by Linus Torvalds for the Linux kernel in 1992.232 The GPL allows
anyone to use the licensed program, to study its source code, to
�modify it, and to distribute (un)modified versions to others, under
the same terms as the initial licence.233 As Hope points out, it is this

for Biomedicine’, 2005 (131), 137. Absent an IP right, restrictions must be imposed
entirely through contract, which might do more damage than good, as the HapMap
project has shown, see Rai, Chapter 15 of this volume.
225
╇ Similarly, Jefferson, R., ‘Science as a Social Enterprise. The CAMBIA, BiOS
Initiative’, 1 EconPapers, issue 4, 2006, 13–17. Contra, Rai, Chapter 15 of this vol-
ume: “… various other flavors of open source essentially amount to a dedication of
source code to the public domain. Those who improve upon source code distributed
under BSD licenses may feel a [social] norm-based obligation to contribute their
improvements back, but they are under no legal obligation to do so”.
226
╇ Hope, Chapter 12 of this volume. 227
╇ Ibid. 228╇ Ibid.
229
╇ See Rai, Chapter 15 of this volume.
230
╇ Hope, Chapter 12 of this volume; Rai, Chapter 15 of this volume.
231
╇ See www.gnu.org/.
232
╇ Linux is the contraction of Linus’ Minix (Minix was a version of UNIX which Linus
Torvalds enhanced). The name Linux was chosen by the developer (Linus Torvald)
to refer to the kernel of the ‘GNU/Linux’ operating system.
233
╇ See www.gnu.org/licenses/gpl.html.
 Of thickets, blocks and gaps 425

final proviso that makes the GPL a copyleft licence, giving it its ‘viral’
character.234
Open source models may have various advantages for both the owner-
user and the follow-up users.235 Addressing the issue of uncertainty of
innovation is one of them. As Aoki clarifies, open source functions as
a form of incomplete contract when there is uncertainty and infor-
mational problems, because knowledge is part of ongoing cumulative
innovation.236
But open source models may also entail some risks. Ullrich warns
that open source models may lead to antitrust concerns.237 Whether
open source models always follow a free access rationale rather than a
business strategy, needs to be examined more closely.

Transposition to genetics
Applying the open source approach to the life sciences, immediately
raises a question of terminology. Some authors prefer to speak of ‘free
biology’ or ‘open access biology’, 238 but this phrase is subject to criti-
cism. Because of the confusion which may arise from the term ‘free’, 239
the term ‘open source biology’ is to be preferred. Adapting the open
source approach to the genetic milieu and particularly to patent licens-
ing in genetics, raises a series of other, more important issues as well,
as the genetic sector is perceived to be quite different from the software
sector. In the open source sector, the technology at hand is software
code, the major IP instrument deployed is copyright, the capital costs of
development tend to be lower, the prevailing industry culture is thought
to be less proprietary and innovations are typically protected using dif-
ferent sets of exclusive rights.240
Notwithstanding the sectorial differences, some working examples
of open source have emerged in the life sciences, mainly in the field of

234
╇ Hope, Chapter 12 of this volume. Similarly, Boettiger and Burk, ‘Open Source
Patenting’, 2004.
235
╇ Hope, Chapter 12 of this volume.
236
╇ Aoki, Chapter 23 of this volume. Also see Hope, Chapter 12 of this volume, referring
to free revealing users and user-owners.
237
╇ See Ullrich, Chapter 22 of this volume and the references cited there, amongst
which Böcker, L., ‘Mit freier Software gegen den Wettbewerb? Die General Public
License (GPL) als horizontale Wettbewerbsschränkung’, Festschrift F. Säcker,
Berlin, 2006, 69.
238
╇ For more details, see Boettiger & Burk, ‘Open Source Patenting’, 2004, 225.
239
╇ See Hope, Chapter 12 of this volume.
240
╇ Hope, Chapter 12 of this volume. Similarly, Boettiger & Burk, ‘Open Source
Patenting’, 2004, 223; Boettiger, S. and Wright, B.D., ‘Open Source in
Biotechnology: Open Questions’, Innovations, 2006, (45), 48; Taubman, Chapter
16 of this volume.
426 Geertrui Van Overwalle

agricultural biotechnology. A prominent example is the Biological Open

Source (BiOS) License from the Centre for Applications of Molecular
Biology in International Agriculture (CAMBIA), a private non-profit
research institute located in Canberra.241 Founded by molecular biolo-
gist Richard Jefferson about fifteen years ago, CAMBIA pioneered,
and subsequently patented the GUS242 and TransBacter 243 technology
serving as a prominent research tool in agricultural biotechnology. The
BiOS initiative was launched in 2004244 and is intended to make these
biological research tools widely available. Improvements made to these
enabling tools are to be shared under the BiOS License regime, but
the products or materials made, created, or obtained by using them,
do not fall under this provision and can be commercialized on a com-
petitive and proprietary market under non-open source conditions.245
Indeed, the BiOS initiators are not averse to users of these tools fil-
ing patents on products made by use of the tools, the intention is to
preserve public access to the initial tools and later improvements and
modifications.246
Another example is the open source style licence policy promoted by
Diversity Arrays Technology (DArT) Proprietary Limited, �discussed at
length by its founding father Andrzej Kilian in his chapter.247 Initially
set up by Kilian in 2001 as a wholly owned subsidiary from CAMBIA

241
╇ See www.bios.net. Also see Berthels, Chapter 13 of this volume.
242
╇ The GUS technology relates to the β-glucuronidase (GUS) gene fusion system and
to the cloning and characterization of the β-glucuronidase and glucuronide per-
mease genes of Escherichia coli. Because of the abundance and availability of useful
substrates for β-glucuronidase enzyme, GUS gene fusions may serve as a super-
ior reporter gene system as well as an effective means of altering cellular pheno-
type. There are also implementations in conjunction with recombinant glucuronide
permease, which may be used to render host cells permeable to β-glucuronidase
substrates (see www.cambia.org/daisy/cambia/2539.html). Also see R.A. Jefferson,
R.A., Kavanagh, T.A. and Bevan, M.W., ‘GUS Fusions: Beta-Glucuronidase as
a Sensitive and Versatile Gene Fusion Marker in Higher Plants’, 6(13) European
Molecular Biology Organization Journal, 1987, 3901–7. For information on patents on
the GUS technology, see footnote 251.
243
╇ The Transbacter technology relates generally to technologies for the transfer of
nucleic acids molecules to eukaryotic cells. In particular non-pathogenic species of
bacteria that interact with plant cells are used to transfer nucleic acid sequences. The
bacteria for transforming plants usually contain binary vectors, such as a plasmid
with a vir region of a Ti-plasmid and a plasmid with a T-region containing a DNA
sequence of interest (see www.cambia.org/daisy/cambia/2538.html). For information
on patents on the TransBacter technology, see footnote 251.
244
╇ Dennis, C., ‘Biologists Launch “Open-Source Movement”’, 431 Nature (News),
2004, 30 September 2004, 494.
245
╇ Berthels, Chapter 13 of this volume.
246
╇ See Boettiger and Burk, ‘Open Source Patenting’, 2004, 221.
247
╇ See Kilian, A., ‘Case 9. Diversity Arrays Technology Pty Ltd.: applying the Open
source philosophy in agriculture’, Chapter 14 of this volume.
 Of thickets, blocks and gaps 427

to deliver the Diversity Arrays Technology (DArT), 248 the company

separated from CAMBIA in 2003 to become an independent privately
owned entity.

Do the three key objectives of open source licensing (credible com-

mitment, competition and, optionally, copyleft) constitute insurmount-
able obstacles to the translation of open source software principles into
the life sciences? Although the phrase ‘credible commitment’ might not
always be employed, this feature seems to be well understood by entre-
preneurs active in the realm of biotech: “The idea of using patent licences
not to extract a financial return from a user of a technology, but rather
to impose a covenant of behaviour, is the single feature of BiOS that is
most resonant with Free and Open Source Software.”249 As Berthels
confirms, it is crucial to BiOS and the owners of technology “to enforce
patents and litigate infringers who are not agreeing to the BiOS licence.
BiOS therefore has to ascertain substantial financial means to obtain
and enforce their patent portfolio”.250 Both in the BiOS and the DArT
case an IP platform was present,251 allowing the IP owners to impose
an open source behaviour on the licensees. Hope also indicates that the
credible commitment requirement does not seem to raise a principle
problem, apart from the fact that the price for obtaining IP – mostly
patents – may be relatively (prohibitively?) high.
The competition requirement has proven to be rather problematic
to implement in the genetic field. According to Hope, a major concern
with regard to the BiOS licence is that the initial innovators seem to use
their IP in the seed technology to retain control over its ongoing devel-
opment or to insist on special rights, leading to insufficient �freedom
to ‘fork the code’.252 CAMBIA accepts such criticism as indicative of

248
╇ Wenzl, P., Carling, J., Kudrna, D., Jaccoud, D., Huttner, E., Kleinhofs, A. and
Kilian, A., ‘Diversity Arrays Technology (DArT) for Whole-Genome Profiling of
Barley’, 101 PNAS, 2004, 9915–20.
249
╇ Jefferson, R., ‘Science as a Social Enterprise. The CAMBIA, BiOS Initiative’, 1
EconPapers, issue 4, 2006, 13–17.
250
╇ Berthels, Chapter 13 of this volume.
251
╇ As to BiOS, the core IP for GUS technology is embedded in three US patents (US
5.268.463, US 5.432.081 and US 5.599.670) and for the TransBacter technology,
patents are pending in the US (US 2005/0289672, US 2005/0289667) and in Europe
(EP 1781082) (For more information on these (pending) patents, see www.cambia.
org/daisy/cambia/2539.html and www.cambia.org/daisy/cambia/2538.html, www.
espacenet.com or www.uspto.gov/patft/index.html). As to DArT, the critical formal
IP for practicing DArT technology was encapsulated in one patent family (US Patent
6.713.258 B2) initially owned by CAMBIA, but reassigned from CAMBIA to DArT
Pty Ltd during the preparation of the case study for the present book (see Kilian,
Chapter 14 of this volume).
252
╇ Hope, Chapter 12 of this volume.
428 Geertrui Van Overwalle

a naïve expectation that one size fits all.253 It is argued that as bio-
logical innovation, biotechnology and software are drastically different
in many aspects, a different approach regarding open source licensing
could be justified.254 255 Rai argues that as a practical matter, this diver-
gence from open source may be more apparent than real, as forking in
open source software is rare in any event.256
The final key element, copyleft, has equally raised concern in a life
sciences context. In conventional biotechnology licensing non-exclu-
sive grant back of licensee improvements are well known.257 The BiOS
License bears resemblance to such grant back provisions, which brings
Hope to say that such arrangements – even though considered harmless
by competition authorities – establish a ‘club atmosphere’, a ‘tit for tat’
approach where the licensor gains a special privilege, and are therefore
not open source.258 As DArT is equally based on the idea that improve-
ments to the technology should be subject to a grant-back provision
from licensees, 259 the same critique might apply. However, the critique
towards DArT might be somewhat toned down as DArT does not claim
to be ‘open source’, but rather to deliver an ‘open source-style’ licence260
which is ‘loosely’ 261 based on open source principles.

253
╇ See Berthels, Chapter 13 of this volume. 254╇ Ibid.
255
╇ Hope’s critique might stem from the fact that the BiOS arrangement claims to be
‘open source’ (BiOS stands for ‘Biological Open Source’, see www.cambia.org),
whereas the BiOS license does not fulfill the necessary criteria to apply this term.
It remains to be seen to what extent the critique from Hope would hold, if BiOS
no longer described itself as an ‘open source’ arrangement, but rather as an ‘open
source-like’ initiative.
256
╇ Rai, Chapter 15 of this volume, with reference to Raymond, E., ‘The Magic
Cauldron’, 1999 (available at www.catb.org/~esr/writings/magic-cauldron/Â�magic-
cauldron.html).
257
╇ See Boettiger and Burk, ‘Open Source Patenting’, 2004, 221.
258
╇ Hope, Chapter 12 of this volume. Also see Hope’s detailed critique on the BiOS
License posted on the Bioforge website on 16 November 2006 (see www.bioforge.
net/forge/message.jspa?messageID=1219#1219). Cf. infra, pp. 446–47.
259
╇ “Open Source principles mean that improvements to the technology made by any
licensee are shared between all licensees. A key requirement of any sub-license
under those principles is the ‘grant-back’ obligation: all sub-licensees agree to grant
to CAMBIA, at no cost, the rights to use any Improvement of the technology, and
CAMBIA will grant those rights at no cost to all licensees and sub-licensees” (see
www.diversityarrays.com/intellectualproperty.html). “Improvements shall mean any
method, improvement or variant of Diversity Arrays Technology that, but for the
license granted, would infringe the Licensed Patent and is protected by Intellectual
Property Rights. All licensees and sub-licensees agree to provide Grant Back
Intellectual Property Rights to CAMBIA, at no cost, for Improvements as defined
above. CAMBIA will license the Grant Back Intellectual Property Rights at no cost
to all licensees and sub-licensees” (see www.diversityarrays.com/intellectualproperty.
html). Also see Kilian, Chapter 14 of this volume.
260
╇ Kilian, Chapter 14 of this volume. 261╇ Ibid.
 Of thickets, blocks and gaps 429

An unsettled issue that calls for further reflection is what will �happen
when an improvement is developed independently from the original
research tool made available under open source conditions. Might the
resulting patent on the improvement not create a blocking situation?
Can recourse on the initial tool be taken on the basis of prior use? This
�situation seems to be different from the one where the improvement
is based on an open source tool with a proprietary technique. In other
words, when a new (improved) research tool is developed, starting from
an open source material and mixed with some proprietary technology. In
the �latter case, it has been suggested that improvements on open source
tools can be patented and commercialized, but should be subject to a
�grant-back licence.

An interesting question is how an open source model can be eco-

nomically and commercially sustainable. A distinction should be made
between ‘seed money’ to establish the core technology and start up an
open source company, and revenues to keep the open source company
viable in the long run.262
As to the set-up money, CAMBIA received a grant from the Rockefeller
foundation as well as computer utilities from IBM to establish the BiOS
initiative.263 In the case of DArT, seed money to develop the DArT
�technology was collected from government funding, philanthropic
donations and research grants.264 Since CAMBIA relied on grants from
foundations to develop the technology rather than on volunteers, some
wonder whether the BiOS approach can still be regarded as pure open
source.265 However, it is difficult to imagine that volunteer work would
be a Â�prerequisite for open source. And what is ‘pure’ open source?
As to the generation of revenues, various approaches have been put to
work, as Hope illustrates. A first strategy is to use open source technol-
ogy to enhance the appeal of a complementary product.266 Closely look-
ing at the BiOS License project, suggests that revenue is indeed also
yielded from the sale of research tools, such as transformation vectors
and plasmids.267 A second way is to provide accessory services.268 As has

262
╇ Hope mainly seems to focus on the second question (see Chapter 12 of this volume).
263
╇ Berthels, Chapter 13 of this volume, with reference to Dennis, ‘Biologists Launch
“Open-Source Movement”’, 2004.
264
╇ See Kilian, Chapter 14 of this volume.
265
╇ See ‘The Triumph of the Commons: Can Open Source Revolutionise Biotech?’ The
Economist, February 10, 2005, cited in Berthels, Chapter 13 of this volume.
266
╇ Hope, Chapter 12 of this volume.
267
╇������������������������������������������������������������������������������������See the ‘Technology Support Services Subscription Agreement’, entitling BiOS licen-
sees to receive licensed material and aiming at recovering some of the costs involved.
268
╇ Hope, Chapter 12 of this volume.
430 Geertrui Van Overwalle

been clearly demonstrated by Kilian in the DaRT case, the majority of

revenue is generated by providing value-added genotyping services and
genetic testing, including data production and downstream process-
ing.269 A third possibility is to use the open source technology as a mar-
ket positioner, in building an organization’s brand and reputation.270

Although translating open source from software to genetics is

unlikely to be straightforward and will be more than “simple Â�cutting
and pasting”,271 Hope convincingly argues that transferring open source
principles from their original milieu to biotechnology is possible and that
a copyleft-style open source licence in relation to diagnostic tests based
on gene patents is feasible.272 However, three remarkable observations
might tune down the optimism from Hope. First, as Rai �indicates, too
much focus on legal architecture and the licensing �component will fail
to accommodate the diversity in open source projects and contexts.273
Second, it remains to be seen to what extent open source licensing can
indeed deal with cumulative technology and subsequent patent frag-
mentation.274 The DArT case clearly demonstrates that the open source
licence model is a viable commercial strategy through the provision of
accessory genotyping services in the context of the DArT technology
package, but it is unclear to what extent the DArT open source-style
licence offering access to the core DArT technology has facilitated
and simplified uptake of this technology.275 Third, as Kilian himself
remarks, the DArT experience seems to suggest that the open source
philosophy will be difficult to be put to practice in market segments
aiming at the largest potential profit margins, such as the biomedicine
sector, unless a specific niche can be identified, likely in an area of

269
╇ For details, see Kilian, Chapter 14 of this volume.
270
╇ Hope, Chapter 12 of this volume. 271╇ Rai, Chapter 15 of this volume.
272
╇ Hope, Chapter 12 of this volume. 273╇ Rai, Chapter 15 of this volume.
274
╇ Boettiger and Wright, ‘Open Source in Biotechnology: Open Questions’, 2006,
45–63.
275
╇�������������������������������������������������������������������������������������This conclusion is based on Kilian, Chapter 14 of this volume: “Under this [the pre-
sent] arrangement, CAMBIA offers DArT [technology] through its BiOS initiative
while we at DArT PL are offering a licence to practise the technology in the context
of a complete technology packageâ•›…â•›as the list of BiOS licensees is not publicly available
it is impossible to judge the extent of DArT’s uptake or development through this
channel.” And it is also founded on Kilian, Chapter 14 of this volume: “Interestingly,
a few years after the separation of DArT PL from CAMBIA the level of interest in
licensing just the right to practise the technology in general is very low (practically non-
existent), while at the same time the level of interest in our genotyping services and
technology provision in general is rapidly increasing.” [Our italics]
 Of thickets, blocks and gaps 431

limited financial opportunity, where competition with ‘mainstream’

�companies would be less intense.276
In conclusion, diagnostic testing might possibly qualify as an area fit
to introduce and apply the open source principles in the near future.
However, further research is necessary to examine whether the open
source approach can provide alternative and viable business models and
can contribute to preserving freedom to innovate in the genetic sector
at large.

Liability regimes
So far, we have mainly focused on patent thickets as one of the major
problems observed in upstream genetic research. We have explored
mechanisms designed to facilitate access to and use of patented
ge�netic inventions. On top of this, problems in downstream product
�development have been reported relating to the translation of early-
stage genetic inventions into applications. The liability regime has
been put forward as a candidate construction to tackle this problem.
Do liability rules indeed assist in bridging the gap between upstream
and �downstream research? In Part IV, the authors have interrogated
the liability regime and its capacity to facilitate translation of basic
�inventions into products.

General concept and framework

The notion of ‘liability rules’ finds its origin in the entitlement theory
articulated by Calabresi and Melamed in their epoch-making contri-
bution ‘Property Rules, Liability Rules, and Inalienability: One View
of the Cathedral’.277 Entitlement theory distinguishes between entitle-
ments protected by property, liability or inalienability rules. An entitle-
ment is protected by a property rule if someone must buy it from its
holder in a voluntary transaction in which the value of the entitlement
is agreed upon by the seller. Property rules involve a state decision
as to who can be given an entitlement, but not as to the value of the
entitlement. An entitlement is protected by a liability rule, if some-
one may use or destroy the initial entitlement if he is willing to pay an
objective determined value for it. Liability rules thus involve additional

╇ Cf. Kilian, Chapter 14 of this volume.

276

╇ Calabresi, G. and Melamed, A.D., ‘Property Rules, Liability Rules, and Inalienability:
277

One View of the Cathedral’, 85 Harv. L. Rev., 1972, 1089–1092. This title refers to
Claude Monet’s series of paintings of Rouen Cathedral, implying that the authors’
academic analysis is but one look at a subject that can be considered from various
points of view.
432 Geertrui Van Overwalle

state intervention: the state does not only decide whom to entitle, but
determines the value of the transfer or destruction. Or, as Merges puts
it, property rules are ‘absolute permission rules’: one cannot take the
entitlements without prior permission of the holder. Liability rules are
‘take now, pay later’ rules: others can use the entitlement without per-
mission of the owner, so long as they adequately compensate the owner
later.278 In translating the Calabresi–Melamed concepts to the IP arena,
Reichman describes a liability rule as a rule “that takes the form of an
automatic licence without the power to exclude”.279 The major differÂ�
ence between a liability rule and an IP right is that a liability rule, in
contrast to an IP right, does not allow to control follow-on applications:
a liability rule allows companies within a defined period of time, to bor-
row one another’s innovation, on the condition they contribute to the
costs of development.280
A distinction can be drawn between two types of liability rule
regimes. A first type, the contractually constructed liability regime, may
be created when “contracting parties start with property rule entitle-
ments, and wind up subject to a collectively determined liability rule”.281
Transferred to an IP setting, this happens when stakeholders voluntar-
ily seek to obtain private arrangements with outcomes that differ from
what the default rules of IP law might otherwise provide.282 A second
type, the codified liability rule comes into being when the legislature
imposes entitlements compensation for certain uses ex ante.283

278
╇ Merges, ‘Contracting into Liability Rules’, 1996, (1293), 1302.
279
╇ See Reichman, J.H., ‘Of Green Tulips and Legal Kudzu: Repackaging Rights in
Subpatentable Innovation’, 53 Vanderbilt Law Review, 2000, 1743–98. Also see
Reichman, J.H. and Lewis, T., ‘Using Liability Rules to Stimulate Innovation in
Developing Countries: Application to Traditional Knowledge’, 337 International
Public Goods and Transfer of Technology Under a Globalized Intellectual Property Regime,
K.E. Maskus and J.H. Reichman (eds.), 2005, 337–366.
280
╇ See Reichman, ‘Of Green Tulips and Legal Kudzu: Repackaging Rights in
Subpatentable Innovation’, 2000. Also see Reichman and Lewis, ‘Using Liability
Rules to Stimulate Innovation in Developing Countries: Application to Traditional
Knowledge’, 2005.
281
╇ See Merges, ‘Contracting into Liability Rules’, 1996 (1293), 1303, who called the
process of creating “contracting into liability rules”, and the resulting organizations
“private liability rule organizations”.
282
╇ See Reichman and Uhlir, ‘A Contractually Reconstructed Research Commons for
Scientific Data in a Highly Protectionist Intellectual Property Environment’, 2003,
from whom the term ‘contractually constructed liability regime’ has been drawn.
Also see Reichman, ‘Of Green Tulips and Legal Kudzu: Repackaging Rights in
Subpatentable Innovation’, 2000. Also see Reichman and Lewis, ‘Using Liability
Rules to Stimulate Innovation in Developing Countries: Application to Traditional
Knowledge’, 2005.
283
╇����������������������������������������������������������������������������������� Rai, A.K., Reichman, J.H., Uhlir, P.F. and Crossman, C., ‘Pathways across the val-
ley of death: novel intellectual property strategies for accelerated drug discovery’,
 Of thickets, blocks and gaps 433

Both subtypes have in common that they aim at converting a prop-

erty rule into a liability rule. Both subtypes differ, however, in the way
this transition is achieved: in the first type the initiative is taken by pri-
vate parties, contrary to the second subtype where the legislator is the
driving force. This results in some additional differing features: in the
first model the value of the transfer or destruction of the entitlement is
determined by private parties, in the second the value is set by the state;
in the first subtype the impact of the measure might be rather limited
in terms of people involved, whereas the effect in the second type might
be more extended in terms of people affected.
Examples of contractually-constructed liability regimes include the
liability regime which two-tiered public–private partnerships may
carry along, as further elucidated by Rai et al. A leading example
of a �codified, government-determined liability regime might well be
the compensatory liability regime described in Reichman’s trendset-
ting paper ‘Of Green Tulips Green Tulips and Legal Kudzu’, which
seems to have been originally designed as an alternative reward sys-
tem for subpatentable innovation, to be enacted by the legislature as
an autonomous, codified regime.284 Another example of formal liabil-
ity rules is the codified compulsory licence regime and the prior use
rights mechanism which can be found in various countries, as Burk
�indicates.285 Last but not least, Ullrich turns our attention to the patent
pool regime and suggests that requiring an open, non-discriminatory
licensing policy to everyone in third-party licensing via pooling as a
matter of competition law, tends to convert the exclusivity principle
of patent protection into a mere liability system, i.e. into a reward-
by-compensation rule.286 It is not clear, however, whether a pool set
up by private parties and subject to governmentally imposed FRAND
rules should be labelled as a contractually constructed or a govern-
ment-determined liability regime, or as an intermediate between the
two. Further research is needed to look into this issue, and the conse-
quences of different labelling.
In an attempt to evaluate pros and cons of liability regimes, Aoki
indicates that contractually constructed liability models are helpful in
cases where the outcome of innovation is uncertain and where informa-
tional problems occur. More in particular, in cases where it is unknown

Chapter 17 of this volume.

284
╇ Reichman, ‘Of Green Tulips and Legal Kudzu: Repackaging Rights in Subpatentable
Innovation’, 2000.
285
╇ Burk, Chapter 19 of this volume. Burk notes that in the US, liability regimes are
occasionally created as judge-made law.
286
╇ Ullrich, Chapter 22 of this volume.
434 Geertrui Van Overwalle

a priori which molecule is most likely to succeed or which researcher

will be most effective.287

Transposition to genetics
Translating the liability regime in a biological sphere is a rather unseen
exercise. One key example of the application of a liability regime in
the biological arena can be found in the mechanism approved in
the International Treaty on Plant Genetic Resources for Food and
Agriculture (ITPGRFA).288 Article 12.4 of the ITPGRFA provides
that facilitated access under the Multilateral System (MLS)289 shall
be provided pursuant to a Standard Material Transfer Agreement
(SMTA).290 Under the SMTA a recipient commercializing a product
shall pay 1.1€% of the sales of the product. No payment shall be due on
any product that is available without restriction to others for further
research and breeding.291 As Henson-Apollonio highlights, the Treaty
imposes an ex ante entitlement for compensation on those who make
commercial applications derived from public-domain seeds.292
The liability regime has also been implemented in the biological
milieu in the context of translational development of new drugs. To
overcome the impasse IP protection may cause in downstream research
in genetics, various suggestions have been put forward and several
�initiatives have been taken in an effort to surmount current barriers
in translational research. One way that has been reported to �facilitate
the interaction between basic research and clinical medicine is the
establishment of translational research centres such as the Regional
Translational Research Centres’ Initiative set up in the framework of
the National Institutes of Health (NIH) Roadmap:293 an integrated
vision to optimize NIH’s research portfolio and identify the most
�compelling research opportunities. 294 A specific response to the �valley
of death �problem in biological research is the Molecular Libraries
Initiative (MLI) undertaken in the NIH Roadmap �context several

287
╇ Aoki, Chapter 23 of this volume.
288
╇ 3 November 2001, www.fao.org/ag/cgrfa/itpgr.htm. 289
╇ See art. 10.4 ITPGRFA.
290
╇ In its Resolution 1/2006 of 16 June 2006, the Governing Body of the ITPGRFA
adopted the Standard Material Transfer Agreement (SMTA).
291
╇ See point 1, Annex 2. Rate and Modalities of Payment under Article 6.7 of the
ITPGRFA.
292
╇ Henson-Apollonio, V., ‘Case 10. The International Treaty on Plant Genetic
Resources for Food and Agriculture: the Standard Material Transfer Agreement
as implementation of a limited compensatory liability regime’, Chapter 18 of this
volume.
293
╇ See http://nihroadmap.nih.gov/clinicalresearch/rtrc.
294
╇ See http://nihroadmap.nih.gov/. For an overview of other, similar initiatives, see
Moran, ‘Public Sector Seeks to Bridge ‘Valley of Death’, 2007.
 Of thickets, blocks and gaps 435

years ago: an initiative to use public funding to advance research on

targets (small molecules) to a stage that elicits industry interest to
develop �products (drugs).295 An alternative way which has recently
received much attention is the creation of contractually �constructed
public–private partnerships including a subsidiary liability regime. In
their concept paper, Rai et al. propose a novel public–private collaboÂ�
ration that would help move upstream �academic research on promis-
ing genes, proteins and biological pathways across the valley of death
that separates upstream research from downstream drug candidates,
and that would equally bridge the public–private Â�divide. Rai et€ al.
believe that successful translation of upstream research into poten-
tial drugs can be achieved through intensive, large-scale collaboration
between academics, who possess unique skills in designing assays that
can determine whether a particular protein is a promising target, and
pharmaceutical firms that hold refined �libraries of potentially use-
ful small molecules as trade secrets, which are largely off limits to
these same academic scientists. Rai et€al. take the view that conven-
tional patent-based strategies are unlikely to �trigger such an alliance
between academic researchers and private firms, as under current
default rules universities might patent targets and/or associated assays
and a private firm might obtain an exclusive licence to the patented
target or assay to carry out the �additional work. Given venture capital-
ists’ current reluctance to invest in relatively early-stage patents, these
exclusive licences may not suffice. 296 A contract-based approach that
makes small molecules available �without �comprising future �patents,
might foster possible Â�academic–private intensive Â�collaboration more
adequately.
The partnership proposed is based on a two-tiered regime, as Rai
et€ al. explain. At Tier 1, both academic external researchers and
Â�participating companies are operating behind a ‘veil of ignorance’:297
although the researchers may possess some information about a
�potentially interesting assay and the participating companies may
hold some basic information about their molecules, information
on both sides is relatively inchoate and precompetitive in nature.
�First-tier access is governed by standardized licences, forbidding
�information �disclosure, �misappropriation and patenting. Once a
‘hit’ has been identified and the academic has chosen a partnering

295
╇ See http://nihroadmap.nih.gov/molecularlibraries/.
296
╇ Rai and Reichman et al., Chapter 17 of this volume.
297
╇ Rai and Reichman et al., Chapter 17 of this volume, with reference to Rawls, J.,
A€Theory of Justice, The Belknap Press of Harvard University Press, 1971.
436 Geertrui Van Overwalle

company, �second-tier �negotiations commence. At Tier 2, qualified

researchers and Â�participating Â�companies move beyond the ‘veil of
ignorance’ and receive all relevant information. Custom-made con-
tractual arrangements specify relations between the academic and
the partnering company and the distribution of expected royalties
from the (then€patented) lead compound. In the event overlaps occur
between molecules from the partnering company and other, initially
participating, firms, a supplementary system of royalties automatic-
ally comes into play, governing compensation to any firm that had
provided structural information about molecules leading to a hit, even
though that firm was not chosen by the researcher as final partner.
In other words, participating firms would be contracting into a sub-
sidiary set of ‘take and pay rules’ or liability rules, rather than relying
entirely on exclusive property rights.298 Central to the public–private
partnership is the trusted intermediary. The intermediary hosts the
pharmaceutical firms’ molecules and conducts the high-throughput
screening of the assembled molecules against the academics’ assays.
The intermediary would thus be the only party to the collaboration
that possesses full knowledge and plays a pivotal role in handling
confidential information. The intermediary would assume responsi-
bility for the day-to-day management and administration of the pool
of molecules as well.
The design of a two-tiered public–private framework has various
benefits. Rai et al. point to a significant increase in public–private
cooperation as the major advantage. Academic–company collabora-
tions on small molecules, assay development and target validation
have been established in the past on a limited, ad hoc basis. The first
tier public–private partnership would provide an opportunity for the
�systematic formation of many more second tier relationships than
currently exist. 299 On top of that, Rai et al. suggest that this model
�significantly reduces transaction costs.
However, a two-tiered partnership might also entail certain prob-
lems. A possible complication could arise if a Tier 2 partnership is
formed and then dissolved. Another problem is that firms might be
tempted to contribute only ‘bad’ molecules, out of fear or misappropri-
ation. Rai et al. argue that restricting participation to academic scien-
tists, and restricting screening to the trusted intermediary only, should
prove attractive and reassuring.300

298
╇ Rai and Reichman et al., Chapter 17 of this volume.
299
╇ Ibid.
300
╇ Rai and Reichman et al., Chapter 17 of this volume.
 Of thickets, blocks and gaps 437

In an attempt to evaluate the promise and potential of the proposed

two-tiered partnership, Burk has investigated the Rai et al. model
through the lens of options and information theory.301 Apparently,
the incentive structure of liability rules is equivalent to that of a ‘call’
option€ – the right to purchase an asset at a Â�pre-defined price – in
futures markets.302 Liability rules, like call options, obligate the owner
of the asset to a transfer of all or part of the rights in an asset for a pre-
�determined price. The recognition that liability rules operate as call
options, raises the possibility that the ‘put’ option – the right to sell an
asset at a pre-defined price – may play a role as well, but this should be
explored further.303
The potential of the Rai et al. public–private collaborative partner-
ship cannot be evaluated as yet as the model has not been put into
practice. It might stimulate large-scale interaction between basic and
clinical science and accelerate translational development of new drugs,
biomarkers and treatment strategies from the laboratory bench into
testing. It remains to be seen, however, whether the model will not turn
out to be too complex in practice and whether it will yield desirable
outcomes. From a more conceptual perspective, it is interesting to note
that the two-tiered public–private partnership arrangement triggers an
additional liability regime under Tier 2, when a ‘hit’ is found with a
molecule coming from multiple firms.304

Comparison of problems and solutions

Having zoomed in on new collaborative licensing models and the
related findings from academic and practical experts, let us now return
to the major question around which the present book revolves. The
current patenting and licensing landscape in human genetics has led
to concerns with regard to the potential adverse effect of patents. The
exponential growth of patents claiming human DNA sequences may

301
╇ Burk, Chapter 19 of this volume.
302
╇ Morris, M., ‘The Structure of Entitlements’, 78 Cornell Law Review, 1993, 440;
Krier, J. and Schawb, S., ‘Property Rules and Liability Rules: The Cathedral in
Another Light’, 70 NYU Law Review, 1995, 440.
303
╇ Burk, Chapter 19 of this volume, and the references cited there.
304
╇ See their contribution, section entitled ‘The option of a contractually-constructed
liability regime’ (Chapter 17 of this volume, pp. 271–72): “In addition to the struc-
ture outlined above, participating firms might also agree on a supplementary system
of royalties that would govern compensation to any firm that had provided structural
information about its molecules to a researcher deciding among promising ‘hits.’ In
other words, firms would be contracting into a subsidiary set of ‘take and pay rules,’
or liability rules, rather than relying entirely on exclusive property rights”.
438 Geertrui Van Overwalle

result in patent thickets and royalty stacking. Exclusive or unreasonable

licensing of gene patents may lead to blocking patents. The cumber-
some translation of early-stage genetic inventions into useful applica-
tions may lead to underuse of potentially useful inventions and form
a valley of death. In order to remedy those problems in an adequate
way, various models have been explored, from a variety of perspectives.
Time has come to evaluate the suggested institutional models in view of
their potential to solve the alleged problems. In other words, as Ullrich
rightly observed, to find out “which exactly is the problem that needs
to be solved, and which institutional arrangement is best suited to bring
about the solution”.305

Analysing the various problems in the current genetic patent land-

scape in more depth indicates that the impasses observed differ in vari-
ous ways (see Table 25.2).
First, the impasses occur in a different stage of the innovation devel-
opment chain. Patent thickets and blocking patents mainly raise sub-
stantial barriers in upstream research. However, it has been suggested
that problems may also be expected in downstream development, for
instance in the design of DNA microarrays.306 The valley of death phe-
nomenon typically emerges in downstream research.
Second, the obstacles observed differ in nature. Patent thickets and
blocking patents do not challenge the access to patented technology
as such, as under patent law the disclosure requirement provides easy
access to the description of the invention at stake. Rather, obstacles
are experienced with regard to the swift use of patented technology
for (research and) development. Downstream translation problems are
connected with both access (disclosure is lacking) and use for research
and development.
Third, the various problems relate to the exchange of different types
of subject matter. Patent thickets and blocking patents relate to the
problematic access and use of intangible material (patents on genetic
inventions), whereas the translational gap relates to the difficult access
to tangible material (small molecules). As recent studies have revealed,
these transactional barriers for material transfer of biological material
may ultimately have more impact on the productivity of basic labora-
tory science than concerns related to patents or other IP.307

305
╇ Ullrich, Chapter 22 of this volume.
306
╇ See Verbeure, Chapter 1 of this volume; Warcoin, Chapter 21 of this volume;
Matthijs and Van Ommen, Chapter 20 of this volume.
307
╇ Walsh, J., Cho, C. and Cohen, W., ‘View from the Bench: Patents and Material
Transfers’, 23 Science, 2005, 2002–2003.
 439
Table 25.2 Differences in problems and solutions for mastering patent thickets and translational gaps in genetics

PROBLEM SOLUTION

Stage Nature Subject Regime Collaborative Objective Subject Open to Presupposes

matter responsible rights model matter
for impasse

Patent thicket Upstream Use Intangible Patents Patent pool Direct: Intangible All Patent
Downstream (use of Clearinghouse facilitate assets (use ownership
�genetic Open source (repeated) of genetic
patents) patent use; patents)
Indirect:
enhance
development
pts and pcss

Translational gap Downstream Access Tangible Trade Multi-firm Direct: Tangible Some No patent
and (access secrets public–private consolidate + intan- ownership;
use and use collaboration develop� gible assets Physical
of small + (optional) ment€pts (access€and ownership
molecules) liability use of small molecules
regime molecules +
know how)
440 Geertrui Van Overwalle

Fourth, the impasses in the current genetic landscape are caused

by different IP regimes. Patent proliferation – and to a certain extent
blocking patents – may be seen as the (indirect) result of the patent sys-
tem offering expanded protection to accommodate inventions related to
biological subject matter. Transnational problems mainly seem to result
from exercising trade secret protection over small molecules.
Overlooking the various problems and their features, it becomes clear
that patent thickets and blocking patents have more characteristics in
common than translational gaps. A clear divide becomes apparent
between the constituting elements and features of patent thickets and
blocking patents on the one hand, and translational gaps on the other
hand. However, the phenomena observed all have one characteristic in
common. Patent thickets, blocking patents and translational gaps may
all frustrate the use of technology and ultimately stifle the development
of health care products and services to the detriment of patients. In that
regard, they all point to a failure in current patent law in achieving its
primary objectives (foster innovation and public health interests) and in
fulfilling its regulatory function.308

Comparing the measures and models suggested by the authors in the

present volume to discipline and master the exercise of patent rights
in genetics suggests that also the remedies differ in many respects (see
Table 25.2). Before analysing those remedies, it is important to note
that most authors have concentrated on resolving problems resulting
from patent thickets, rather than on mitigating the impact of (a single)
blocking patent(s).
First of all, the models differ in the objectives pursued. The direct
purpose of patent pools, more advanced forms of clearinghouses and
open source models is to facilitate access and use of patents. The direct
purpose of the public–private collaboration model developed by Rai et
al. goes far beyond that. It not just aims at facilitating access and use,
but at establishing firm, steady, long lasting and fruitful multi-party
collaborations for the production of new goods and services. Of course,
the ultimate, indirect objective of measures designed to facilitate access
and use is to enhance the production of goods and services as well, but
the development of such goods and services not necessarily takes place
in a collaborative endeavour.

╇������������������������������������������������������������������������������� Patent thickets and blocks result from an inadequacy of patent law to accommo-
308

date the ‘diffusion/innovation dilemma’. Interface problems result from an inabil-

ity of patent law to provide an appropriate response to the ‘exploration/exploitation
dilemma’, see Dedeurwaerdere, Chapter 24 of this volume.
 Of thickets, blocks and gaps 441

Second, the subject matter of the transactions differs as well. The

subject matter of the transaction in patent pools, clearinghouses and
to a great extent in open source is intangible in nature. Pools, clear-
inghouses and open source models are mainly designed to facilitate the
exchange of IP rights. The subject matter of the transactions in the
public–Â�private partnership is tangible in nature and relates to small
molecules (although later on the transfer of related intangible know-
ledge is aimed at as well). One of the examples discussed under the
standard clearinghouse model, namely the Science Commons Material
Transfer Agreement (MTA) Project,309 in fact also belongs here as it
mainly aims to facilitate the transfer of tangible research resources
(such as biological materials and reagents) by way of standard contracts.
Although MTAs often include IP clauses, they do not primarily focus
on minimizing IP bottlenecks.310
Third, the ability and desire to participate311 in a collaborative model
varies. In principle, the patent pool, the clearinghouse and the open
source model, do not employ a threshold and anyone (patent holders
and third parties alike) can request access to and use of one or more
patented inventions. It may well be though, that a kind of member fee
has to be paid to start negotiations, as is the case in some commercial
clearinghouses. In contrast, the two-tiered public–private partnership
is only open at Tier 1 to a restricted number of qualified public sector
researchers, acting ‘behind the veil’. At Tier 2 the circle of happy few is
reduced and only an even more limited number of academics may act
behind the veil.
Fourth, the collaborative institutions differ in the IP portfolio they
require at the outset. Patent pools, patent clearinghouses and open
source patent models, presuppose the existence of patents, in order to
compel user-licensees to contribute or act in a certain way, for example
pay a royalty (in the patent pool and clearinghouse model) or distrib-
ute the (improved) invention to others (in the open source model). The
public–private ownership is based on physical ownership of molecules

309
╇ See Nguyen, Chapter 9 of this volume.
310
╇ Rai and Reichman et al. indirectly voice some criticism on the Science Commons
MTA project. Although standard agreements are a mechanism for reducing transac-
tion costs in transfers of (drug-related) materials between academics and the private
sector, full standardization will be difficult to achieve and even if standardization
were successfully created and implemented, the problem of insufficient numbers of
transactions might remain. See Rai et al., Chapter 17 of this volume.
311
╇ Participating here does not refer to the ability to establish a collaborative institution,
but to the ability to enter into negotiations once the collaborative mechanism has
been set up. In other words, not participation as an owner/holder (of IP), but rather
as a user (of IP).
442 Geertrui Van Overwalle

(from industry) or assays (from academia), and it is even forbidden to

patent any material after having been granted access under Tier 1.
Fifth, the arrangements differ in their effect on exclusive ownership.
As Ullrich indicates, patent pools requiring as a matter of competi-
tion law an open licensing policy (i.e. non-discriminatory licensing to
everyone) tend “to convert the exclusivity principle of patent protection
into a mere liability system, i.e. into a reward-by-compensation rule”.312
Clearinghouses, on the other hand, maintain the ownership dogma
and “the property rationale of the patent system, i.e. its principle of
exclusivity-based individual exploitation”.313 Burk also points to this
phenomenon.314 The paradoxical effect of collaborative mechanisms on
entitlements should not totally come as a surprise though, as Merges
already pointed to this effect a long time ago.315
Overlooking the various solutions, it becomes apparent that patent
pools, clearinghouses and open source models have much more in com-
mon than the public–private Rai et al. model. A clear divide emerges
between the characteristics of pools, clearinghouses and open sources
on the one hand, and the small molecule public–private partnership,
on the other hand. All models have in common that they may be imple-
mented on a voluntary or a non-voluntary basis.

25.5 Testing the research hypothesis

In order to reach a final conclusion on what institutional design (most)
adequately solves the problems observed, it seems appropriate to
evaluate the proposed measures against the postulated goals and to
verify the four additional assumptions with the findings of the vari-
ous authors in the present book, taking into account the differences in
objectives, features and effects of the various models (as represented
in Table 25.2).

Starting goals
The presupposed goals set forth at the start (see p. 397–98) are to
promote solutions within the boundaries of the patent system that
mitigate possible harmful effects of patents in diagnostic genetics. In
other words, it is assumed in the present volume that what has to be
achieved is (a) to maintain the positive effects of patent law (incentive

312
╇ Ullrich, Chapter 22 of this volume. 313
╇ Ullrich, Chapter 22 of this volume.
314
╇ Burk, Chapter 19 of this volume.
315
╇ Merges, ‘Contracting into Liability Rules’, 1996, (1293), 1302.
 Of thickets, blocks and gaps 443

for the production of drugs and therapies important in health care)

and (b) to design measures to remedy some of the hindering effects
in the field of genetics and in diagnostics in particular (c) within a
�reasonable time frame. If these are the goals, then opting for the cre-
ation of tools which optimize the negotiation of a multitude of (block-
ing) patents seemed most adequate. In other words, the best way to
remedy current obstacles in the genetic patent landscape is to work on
the horizontal regulatory function of patent law316 by designing formal
rules of contract.317
The authors of this book differ in opinion on this point of departure.
A minority of authors explicitly refute this idea, bringing up two major
arguments.
A first argument is that the hindering effects patents may cause in
genetics directly relate to the existence of patent claims on human genes.
The authors suggest that the patent regime for human genes has to be re-
assessed and that patent rights for genes should be forbidden or at least
narrowed down significantly. Matthijs and Van Ommen, herein antici-
pated by other fellow geneticists, support this approach and favour the
abolition of patents on genes, on individual mutations in known �disease
genes and on the link between a (defect in a) genetic sequence and a dis-
ease. As to the latter, they argue that the establishment of an association
between a monogenic disease and a gene or an individual mutation is
a discovery and thus not patentable318,â•›319 (even though they are willing
to admit that this clear-cut reasoning becomes blurred in the case of
multifactorial diseases), and that only patents on diagnostic method-
ology should be allowed. Their views are echoed in the recently adopted
Recommendations of the European Society for Human Genetics.320
Along the same line, Spence suggests that serious thought must be given
to whether the potential problem of the anticommons is not, after all,
that too many gene patents are granted.321 Warcoin equally argues that
the best way to proceed is to establish statutory limitations upstream,

316
╇ For the distinction between the vertical and the horizontal regulatory function of
patent law, see pp. 394–96.
317
╇ For the distinction between formal legal rules and formal rules of contract, see
Dedeurwaerdere, Chapter 24 of this volume.
318
╇ This would be naturally achieved if this association was regarded as a discovery,
not an invention (Matthijs and Van Ommen, Chapter 20 of this volume). Similarly,
Andrews, L., Paradise, J., Holbrook, T. and Bochneak, D., ‘When Patents Threaten
Science’, 314 Science – Policy Forum, 2006, 1395–1396.
319
╇ With the current technology, there is arguably no inventive step and a lack of novelty,
which would exclude them from patenting under current patent law (Matthijs and
Van Ommen, Chapter 20 of this volume).
320
╇ European Society of Human Genetics, 2008.
321
╇ Spence, Chapter 11 of this volume.
444 Geertrui Van Overwalle

including the limitation of patentable subject matter.322 This viewpoint

has also stricken a sympathetic chord amongst some US �judges.323
Worthwhile as it may be,324 carving out gene patents from patent law
is not an option in view of the goals set out at the start, and more in
�particular the temporal element.325
A second argument which has been put forward is that collabora-
tive clearing models focusing on the exercise of patents are unfeasible
and undesirable. Warcoin claims that such initiatives are difficult to
realize.326 Spence argues that the establishment of some collaborative
measures is not only unachievable, but also potentially inconvenient as
it may worsen rather than diminish the problem and even risk having a
perverse effect. 327 Clearinghouses may exacerbate, rather than relieve
the problem. In the same line, Ullrich states that the problem of patent
thickets “is…a self-created one, which does not Â�necessarily justify pow-
er-building through pooling, on the contrary”.328 He claims that “a lib-
eral attitude on pooling invites even more patenting, thus aggravating
the Â�problem”. Relevant as this thoughtful critique may be, the adverse
effect of �models facilitating access on the proliferation of patents has
not been widely documented yet. Therefore, and in view of the goals set
out at the start, modelling mechanisms to mitigate the adverse effects of
gene patents is accepted to be the best option for now.
The majority of authors in the present collection indeed share the
view that solutions to the current impasses in gene patenting should
concentrate on the exercise of patent rights related to human genes. They
agree€ – implictly or explicitly, in subdued voice or loudly Â�speaking –
that the current legal framework is the result of a long, cumbersome
and legitimate decision-making process, which outcome cannot be
undone overnight, and should therefore first and foremost be addressed
by alternative, contractual measures eventually complemented by legal
measures.

322
╇ Warcoin, Chapter 21 of this volume.
323
╇ Cf. Justice Breyer (dissenting) in Supreme Court of the United States, Laboratory
Corporation of America Holdings, Labcorp, Petitioner v. Metabolite Laboratories,
Inc. et al, on writ of certiorari to the United States Court of Appeals for the Federal
Circuit, 22 June 2006. Cf. Andrews et al., ‘When Patents Threaten Science’,
2006.
324
╇ We have supported the exclusionary option for a long time (see Van Overwalle,
‘Reshaping Bio-Patents: Measures to Restore Trust in the Patent System’, 2007) but
prompted by some pragmatism we have shifted our attention from (pre-grant) pat-
entability issues to measures resolving potential negative (post-grant) effects of gene
patents.
325
╇ This chapter, pp. 397–98. 326
╇ Warcoin, Chapter 21 of this volume.
327
╇ Spence, Chapter 11 of this volume. 328
╇ Ullrich, Chapter 22 of this volume.
 Of thickets, blocks and gaps 445

Research assumptions
Four assumptions have further been articulated to refine this option
(see p. 399–403). These four assumptions will now be tested against the
findings of the experts.

Contractual and collaborative shape

The first assumption of the present book is that, in the current state of
affairs, the access and use of (patented) inventions in the genetic field
in general, and in the field of genetic diagnostics in particular, would
best be served by contractual, collaborative efforts and institutions,
taking the form of patent pools, clearinghouses, open source licences
or liability regimes.

Concepts and cases

The conclusion that collaborative models may assist patent law in deal-
ing with current limits, calls for some nuance. The conclusion is based
on a thorough examination of conceptual features and applicable law,
but not on a wide empirical analysis of existing cases, as hardly any of
those models has been put to practice in the genetic field (yet). The
conclusion therefore has to be toned down a little.

Categorizations and definitions. What’s in a name?

The categorization set forth at the start (see Table 25.1) is mainly
based on the legal structure and the variety in underlying legal agree-
ments which characterize the models. From a legal perspective, a
patent pool is a collaborative model where access is regulated on the
basis of a set-up agreement between the rights holders, and where the
later transactions can come about through an intermediary or not. A
clearinghouse is a model where access is institutionalized without a
set-up agreement between the right holders, and where the exchange
takes place through an intermediary. Another way to categorize the
models is by looking through the window of competition law, which
is, as Ullrich says, mainly focusing on the effects of collaborative mod-
els on competition. Competition law “is not interested in the form of
institutions or of organizational arrangements, but in the distortion of
competition, which choosing and adopting such an arrangement actu-
ally produces”.329 Yet another way of assessing the models is through
economic theory, as Aoki does. Aoki looks at the effect of the various
institutions on exchange, rather than the legal set up of the models.

329
╇ Ullrich, Chapter 22 of this volume.
446 Geertrui Van Overwalle

As another criterion is used a �different categorization results. From a

legal perspective, a patent pool is quite distinct from a clearinghouse,
as a pool is established through a set-up agreement amongst all patent
holders. From an economic �perspective, however, patent pools may
be regarded as quite similar to (a subtype of) clearinghouses, namely
copyright collection societies, as they both aim at providing a bundle
of goods and benefiting from network effects.330 Still other lenses may
be deployed to analyse the �institutional arrangements at stake, such as
the options and information theories, as �suggested by Burk.331
The definitions employed at the start332 to characterize the vari-
ous models have been drawn from prevailing scholarly literature. It
is remarkable to see, however, how various authors have applied dif-
ferent labels when qualifying the same arrangement or institution.
One example is the SNP Consortium. In the view of Holden, cited by
Verbeure, the SNP Consortium is a patent pool.333 According to van
Zimmeren, the SNP construction can be qualified as an open access
clearinghouse,334 whereas Burk argues that it is a put “at an exercise
price of zero”.335 Another example is PIPRA. When clarifying that
PIPRA provides information and matches scientists and technology
transfer offices, Bennet and Boettiger suggest that PIPRA is an infor-
mation clearinghouse. Van Zimmeren, however, qualifies PIPRA as a
technology-�exchange clearinghouse in this regard. When it comes to
the design and distribution of research tools in its own laboratories,
Bennet and Boettiger conclude that PIPRA is also a standard licence
clearinghouse, which is debatable as well.336 Yet another example is the
BiOS arrangement. It is generally accepted that BiOS is an open source
initiative. Hope has argued, however, that the BiOS construction has a
“club character”,337 which might lead to believe that BiOS resembles a
patent pool,338,â•›339 or is a hybrid between open source and patent pools.

330
╇ See Aoki, Chapter 23 of this volume. 331
╇ See Burk, Chapter 19 of this volume.
332
╇ Supra, see pp. 405, 413, 422, and 431. 333
╇ Verbeure, Chapter 1 of this volume.
334
╇ See van Zimmeren, Chapter 5 of this volume.
335
╇ More in particular, where the holder of the technology can essentially require the
public to take the invention, electing not to hold it as a trade secret or pursue a
patent, see Burk, Chapter 19 of this volume.
336
╇ Supra, p. 419. 337╇ Hope, see Chapter 12 of this volume.
338
╇ More in particular the pool construction achieved after the cross-licensing of patents
amongst patent holders in the set-up agreement.
339
╇ Concluding that BiOS resembles a pool would be incorrect in view of the economic
literature on club goods. A patent pool (after the set-up agreement) may probably be
qualified in terms of ‘jointly owned club goods’ or as ‘jointly owned private goods’.
The BiOS model rather seems to comply with a ‘common pool good’ concept. For
a definition of these concepts ‘(jointly owned) club goods’, ‘(jointly owned) private
 Of thickets, blocks and gaps 447

And the critique that there is insufficient freedom to “fork the code”,
suggests that BiOS is not open source at all.340 Last but not least, there is
the figure of the trusted intermediary in the Rai et al. model. Analyzing
the components of the two-tier collaboration arrangement, and screen-
ing the role and the set up of the trusted intermediary, makes one
�wonder whether the trusted intermediary, should be seen as the broker
of a clearinghouse or as an independent administrator governing a pool.
The trusted intermediary in the Rai et al. model is probably neither of
the two.
Categorizations are helpful intellectual tools to refine the analysis on
institutional models and to further legal scholarship on the complex-
ities of applying collaborative measures in a genetic context. Different
labels might be the result of unclear definitions of the basic concepts.
Varying qualifications may also appear in cases where the models are
not totally mutually exclusive or where different interpretations of
the same definition may occur. Discrepancies in labelling could be
the subject of further examination. However, the categorizations put
�forward in this book are not sacrosanct and the definitions employed
are not unassailable. The debate on collaborative action should not be
led astray by semantic subtleties and incongruities. What counts is the
effect these measures achieve in fulfilling the objective of accessibility
and �sharing in practice, disregarding the way in which the arrangement
can or should be qualified.

Upstream and downstream

The statement that differing collaborative measures might be needed
to take care of upstream and downstream problems, has not been con-
firmed. Verbeure, Goldstein, van Zimmeren, Spence and Hope suggest
that patent pools, clearinghouses and open source might assist to clear
patent thickets, one of the major problems said to appear in upstream
research. However, some of the recent technical developments, such as
DNA microarrays, suggest that patent thickets may equally emerge in
downstream development, and that patent pools, clearinghouses and

goods’ and ‘common pool good’, see Polski, M., ‘The Institutional Economics of
Biodiversity, Biological Materials, and Bioprospecting’, 53 Ecological Economics,
2005, 543–557.
340
╇ The critique from Hope might stem from the fact that the BiOS arrangement claims
to be ‘open source’ (BiOS = Biological Open Source, see www.cambia.org), whereas
the BiOS license, strictly speaking, does not seem to fulfill all the necessary criteria
to apply this term. It remains to be seen to what extent the critique from Hope would
hold, if BiOS described itself as an ‘open source-like’ arrangement, rather than an
‘open source’ initiative.
448 Geertrui Van Overwalle

open source might be helpful to traverse the scattered patent landscape

downstream as well. The Rai et al. model merely seems adequate to
solve the problem of translation in downstream research.
The reservation that collaborative measures will not be adequate to
mitigate the problems resulting from one or more patents belonging
to a single, uncooperative or patent holder, was confirmed. Verbeure,
Goldstein, Horn and Warcoin agree that patent pools will have lim-
ited potential in solving the problem of holdouts. In the same line, van
Zimmeren and Spence suggest that clearinghouses will most probably
not be able to deal with unwilling patent holders. Rather compulsory
licences schemes and informal norms of fair licensing might be helpful
to solve the effect of blocking patents.341

From diagnostics to genetics

Collaborative models might indeed help to cut through the patent
thicket, with regard to upstream (and downstream) genetic diagnos-
tics. Verbeure, van Zimmeren and Hope all underline that patent pools,
clearinghouses and open source models, might be accommodated to
remedy hindering effects of patents in the diagnostic sector. This con-
clusion is based on the specific characteristics and features of the diag-
nostic testing sector, tipped as the number one candidate falling victim
of a patent thicket in genetics. However, prudence is in order when
extending their conclusion to the whole sector of genetic research and
innovation at large.

Public or private
It has been argued in literature that it is the role for public sector and
governance structures in particular to govern collaborative models,
such as patent pools.342 However, as the proponents admit, this sug-
gestion might have a limited field of application, as not all areas of

341
╇ See G. Van Overwalle (ed.), Gene Patents and Public Health Brussel, Bruylant, 2007,
and more in particular the contributions of Debrulle, J., De Cort, L. and Petit, M.,
‘La licence obligatoire belge pour raisons de santé public’ (161–198) [with a transla-
tion into English: ‘The Belgian Compulsory License for Public Health’ (199–209)],
Germann, C., ‘The Swiss Approach to Compulsory Licensing for Diagnostic
Products and Processes’ (149–157), van Zimmeren, E. and Requena, G., ‘Ex-Officio
Licensing in the Medical Sector: The French Model’ (123–147). Also see Van
Overwalle, G., ‘The Implementation of the Biotechnology Directive in Belgium and
its Aftereffects. The Introduction of a New Research Exemption and a Compulsory
License for Public Health’, 37 IIC, 2006, 889–920.
342
╇ Caulfield, T., Einsiedel, E., Merz, J.F. and Nicol, D., ‘Trust, Patents and Public
Perceptions: The Governance of Controversial Biotechnology Research’, 24 Nature
Biotechnology, 2006, 1352–54.
 Of thickets, blocks and gaps 449

research or all forms of patents lend themselves to this kind of govern-

ance scheme.
Conversely, it has been suggested that it is the role of the private
sector to develop the models, and the challenge for the public sector to
scale them up.
Like the business innovators who come up with major innovations for the
marketplace, social innovators are the mad scientists as it were – working away
in their organizations that act like social innovation laboratories. They test and
perfect different approaches, and when they come up with the most effective
and efficient ones with the greatest impact, it should be government and the
corporate sectors’ respective roles to celebrate the innovation, take it up, learn
from it and help scale it so that all can benefit. Ultimately, the innovation lies in
the models devised for service and product delivery all along the supply chain€–
not in the provision of the good itself. It is those models that others need to take
up and replicate.343

Only a few authors in the present book have focused on the possible role
of public and/or private actors in setting up and/or managing collabora-
tive models. Van Zimmeren favours private initiatives or public–private
partnerships over a statutory, compulsory regime.344 Spence underlines
that institutions should “fulfil a public duty” by maximizing activity
in the biomedical sciences.345 Following Dedeurwaerdere, one of the
major lessons of this book is that a whole range of actors – ranging
from academic scientists, technical experts patent attorneys, commer-
cial enterprises to NGOs – may have an interest in applying innova-
tive contractual models and in setting up collaborative mechanisms in
�genomic research.346

IPR based
The second assumption at the start of our explorative tour d’horizon was
that contractual, collaborative models are based on the pre-existence
of IP law in general, and patent law in particular. This assumption is
confirmed in the patent pool, clearinghouse and open source models.
This finding came as quite a surprise for the open source model, once

343
╇ Schwab and Hartigan, ‘Social Innovators with a Business Case. Facing 21st Century
Challenges. One Market at a Time’, 2006, 7–11.
344
╇ van Zimmeren, Chapter 5 of this volume.
345
╇ Spence, Chapter 11 of this volume.
346
╇ Cf. Dedeurwaerdere, Chapter 24 of this volume: “We will focus on one of the main
lessons of this book from the point of view of institutional analysis: the involvement
of the scientific and the user communities in innovative contractual and licensing
agreements has proven to be successful in alleviating some of the collective-action
problems that are raised by genomics research”.
450 Geertrui Van Overwalle

it became clear that ‘credible commitment’ is key and that the success
of the open source concept depends on the existence of a strong IP
power platform. As Taubman indicates, the open source experience in
the life sciences demonstrates the positive role IP may play: “Exclusive
or proprietary rights can be used to leverage access, to promote dissem-
ination, to safeguard downstream use rights; the notion of promoting
access through rights that exclude is indeed the underlying paradox of
IP law and policy”.347 The second assumption has not been confirmed
with regard to the downstream collaborative public–private partnership
construction put forward by Rai et al. Indeed, the starting up of this
model is not based on IP protection as it is forbidden to patent potential
hits under Tier 1. It has to be noted, however, that under Tier 2, patent
protection can come into play as from this moment patent applications
are allowed.
So, patents fulfil a different role in the set-up phase of new, collaborat�
ive licensing models. In patent pools, (standards and) patents seem use-
ful to bring knowledge/technology holders together on a (more or less)
equal footing and start negotiations. In contrast, in the public–private
partnership model patents are not perceived as helpful in triggering col-
laboration between the various technology/knowledge holders and the
set up of a pool of libraries (or as Burk puts it “a semi-commons”348) of
small molecules. Patents also seem to play a different strategic role later
on, once the models are in place. In patent pools, patents are important
to raise revenue from the user-licensees. In open source models, patents
are not important to collect money, but to enforce a certain sharing
behaviour from the user-licensees. In the public–private partnership,
patents will also be operational in gathering rent from user-licensees,
once a product is developed from the initial hint. Further research is
needed to explore the role of (intangible or tangible) ownership in trig-
gering collaboration in the set-up phase of new licensing models and in
sustaining the models established.
A distinct observation is that collaborative models have a different
effect on ownership. It has been suggested that collaborative models,
once operational, turn patent rights and ownership rules into mere
liability regimes.349 However, the research on this point mainly reported
on patent pools and royalty collecting societies, and has hardly looked
into open source models. Would it also be correct to assume that col-
laborative measures reshape the patent and exclusive ownership regime

╇ Taubman, Chapter 16 of this volume.╅╇ 348╇ Burk, Chapter 19 of this volume.
347

╇ Supra, pp. 431–34.

349
 Of thickets, blocks and gaps 451

into a ‘reconstructed commons’350 or ‘positive commons’?351 This is

probably true for open source regimes, but what about patent pools and
clearinghouses? The change in entitlement regime, provoked by collab-
orative models, merits further attention.

Economically viable
The third assumption that the models designed should be viable in a
not-for profit, as well as in a for-profit, context has been answered in
different ways. Verbeure points to some advantages for for-profit play-
ers to enter into a patent pool, but as yet it is unclear whether these
arguments will be convincing enough. Van Zimmeren clearly demon-
strates that most clearinghouse models substantially reduce transaction
costs352 and may therefore be attractive in a for-profit, market context
as well. Rai et al. equally argue that the public–private partnership sub-
stantially reduces transactions costs, and that pharmaceutical firms
stand to risk little and gain a great deal through participation.353 Hope
and Dedeurwaerdere go along with the idea that collaborative models
display certain benefits in a for-profit, market context.354
Looking at the BiOS initiative, Berthels admits that costs associated
with innovation using biotechnology are currently high and that it is
likely that funding from philanthropic organizations and governments
to address agricultural and health problems in �developing �countries

350
╇ The term ‘reconstructed commons’ is drawn from Reichman and Uhlir, ‘A
Contractually Reconstructed Research Commons for Scientific Data in a Highly
Protectionist Intellectual Property Environment’, 2003, 315. Also see Van
Overwalle, G., ‘Octrooien op maat? Naar een evenwicht tussen publieke opdracht
en privaat goed’ [‘Patents Fit All? Towards an Equilibrium Between Public Mission
and Private Good’], in B. Pattyn and G. Van Overwalle (eds.), Tussen Markt en Agora.
Over het statuut van universitaire kennis [Between Market and Agora. About the Status of
Academic Knowledge], Leuven, Peeters, 2006, 181–214.
351
╇ A positive commons is “a common in which resources are jointly owned and so use
of those resources by any one commoner depends on all the commoners having
consented”, see Drahos, P., ‘The Commons, The Public Domain and (Monopoly)
Commerce’, paper presented at the conférence The Politics and Ideology of IP, organ-
ized by the Transatlantic Consumer Dialogue (TACD) Brussels, 20–21 Mars 2006
(www.tacd.org/events/intellectual-property/p_drahos.ppt); Drahos, P., ‘A Defence of
the Intellectual Commons’, 16 Consumer Policy Review, May/June 2006, 3–5. Also see
Van Overwalle, G., ‘L’intérêt général, le domaine public, les commons et le droit des
brevets d’invention’, in M. Buydens and S. Dussolier (eds.), L’intérêt général et l’accès
à l’information en propriété intellectuelle, Brussel, Bruylant, 2009, 149–75.
352
╇ Transaction costs include search costs, bargaining costs and enforcement costs.
353
╇ Rai and Reichman et al., Chapter 17 of this volume.
354
╇ “Even in markets well served by the profit motive, a science commons can in some
circumstances improve efficiencyfor example, when many disparate firms can draw
on a common clearinghouse of knowledge and data, rather than having to construct
the same information firm-by-firm (resulting in substantial duplication costs)”,
Dedeurwaerdere, Chapter 24 of this volume.
452 Geertrui Van Overwalle

remains vital. However, open source biotechnology approaches of

�transparency and leverage through creation of platform public resources
may make such expenditures more efficient and �effective, and ultim-
ately may drive such costs down.355 Some �thoughtful observers do not
share this optimism and remain very concerned about the �sustainability
of the BiOS model.356 The DArT case clearly �demonstrates that the
open source licence model is a viable commercial �strategy, but it is
questionable whether this model can stand the test in market segments
aiming at the largest potential profit �margins, such as the biomedi-
cine sector.357 It remains to be seen whether indeed an open source
approach will be viable in the genetic sector at large. Further economic
research is needed to provide a more refined and robust answer to this
question.

Restoring trust and halting ignoring the norm

The fourth assumption that collaborative models will reduce the nega-
tive social impact of patents and will help to restore trust in the patent
system, as a mechanism to foster both private and public interest encom-
passing both economic and social welfare, is probably the most difficult
one to prove. A definite answer is difficult to give. Dedeurwaerdere, in
a more general fashion, concludes that “the more general discussion of
the different legal models for reconstructing the commons in this vol-
ume shows that a variety of social goals can benefit from a robust scien-
tific commons in genomics: these include advancing science, improving
public health, improving food security, contributing to understanding
and conserving biological diversity, and contributing to industrial R&D
and commercialization”. Caulfield et al. suggest that mainly governance
structures are fit to help maintain public trust and argues that an inde-
pendently public/privately governed patent pool might be one example
mechanism to do so.358 Additional empirical research is needed on the
effect of different collaborative structures on trust. Further theoretical
analysis is necessary on the concepts of trust and social impact, on ways
to evaluate them and on underlying values.
The related assumption that collaborative models might reduce ‘ignor-
ing the patent norm’ amongst users, is also difficult to prove at this point
in time. Spence and Warcoin are both critical about the desirability of

355
╇ Berthels, Chapter 13 of this volume.
356
╇ Boettiger, S. and Wright, B.D., ‘Open Source in Biotechnology: Open Questions’,
1(4) Innovations, 2006, (45), 53.
357
╇ Cf. Kilian, Chapter 14 of this volume.
358
╇ Caulfield et al., ‘Trust, Patents and Public Perceptions: The Governance of
Controversial Biotechnology Research’, 2006.
 Of thickets, blocks and gaps 453

such an effect.359 The recent Recommendations of the European Society

for Human Genetics (ESHG), however, give evidence of a change of
attitude. The ESHG urges its members, and the genetic community
at large, “to respect the patenting and licensing rules – once they are
acceptable”.360 Such a recommendation displays wide sympathy for a
transition from tacit infringement as a working solution to proper roy-
alty payments as a default strategy.

25.6 Final conclusion

The current patent landscape for human genomic science has refuelled
the debate on human gene patents. Expressed in figurative language,
concerns are raised that patent thickets and blocking patents will lead
to a tragedy of the anticommons, and that new genetic inventions
might not find their way into products as a translational gap might
widen to form a valley of death, thus frustrating new treatments in
health care. Even though the problems may not paralyse commerce
as yet, all authors of this book – lawyers, economists, patent experts,
geneticists€ – in unison agree that the problems reported in current
patent law and practice in the field of genetics are real and merit fur-
ther attention, especially in the area of genetic diagnostics, which
seems to be most prone to suffer from patent discomfort in the near
future. The problems in genetic diagnostics are expected to grow with
the turn from monogenetic testing to multifactorial testing (multi-
plex diagnostics) and the availability of bio-chips and microarrays.
Difficulties might dramatically increase with the paradigm shift from
monogenetic and multifactorial diagnostics based on Mendelian caus-
ality to diagnostics based on genome-wide association studies driven
by the high-throughput of SNP platforms and the next-generation
sequencing possibilities.
The central question around which this book revolves is what meas-
ures should be taken to render patented human genes accessible for
further use. This question is constricted to what measures should be
contemplated to safeguard research and development in genetic diag-
nostics, as this area is most prone to fall victim of patent thickets.
When exploring such measures, it is presupposed in this book that
the ultimate goal of any measure is to maintain the function of patent
law as incentive for the production of drugs and therapies important
in health care and to remedy some of the adverse effects patent law

╇ Spence, Chapter 11 of this volume; Warcoin, Chapter 21 of this volume.

359

╇ European Society of Human Genetics, 2008.

360
454 Geertrui Van Overwalle

may have in the field of diagnostics, within a reasonable period of

time. Creating tools which optimize the negotiation of a multitude of
(�blocking) patents in diagnostics seems to be a better option to meet
this goal, rather than reforming patent law and carve out gene patents.
In other words, the best way to deal with current obstacles in the gen-
etic patent landscape is to remedy the horizontal regulatory function of
patent law by designing formal rules of contract, rather than address-
ing the vertical regularity function by enacting or modifying formal
legal rules.
Four assumptions have been put forward to make this point more
exacting. The first assumption is that in the current state of affairs, the
problems created by patent law in genetic diagnostics are best served
by contractual, collaborative measures. The specific features of the
collaborative models and the nature of the subject matter exchanged
therein, suggest that patent pools, clearinghouses and open source
models are most fit to traverse the patent landscape in genetic diag-
nostics and thus meet the starting goal. Successful as it may be to solve
the translation of small molecules, the plasticity of the public–private
partnership with optional liability regime appears rather limited in this
area and it is difficult to imagine to what extent the model can be
applied to other contexts.
Consideration of prerequisites, benefits and disadvantages of the
various models leads us to believe that the optimal patent pool model
in diagnostic genetics might well be a patent platform where individ-
ual patent pools are narrowly defined around single genes comprising
vertically oriented patents, thereby providing access to horizontally ori-
ented thickets. It will take quite a while before such a platform may
be operationalized and meanwhile efforts should concentrate on patent
pools set up around single genes or gene panels. The optimal clearing-
house might well be a fully fledged patent royalty collection clearing-
house. Since this is probably too far fetched for the time being, major
efforts in the coming years should focus on setting up patent standard
clearinghouses in genetic diagnostics, tuned to the varied needs in this
branch of genetics and tailored to the specific characteristics of the bio-
tech business sector. As to open source models, translating open source
from software to genetics and introducing copyleft-style open source
licence in relation to diagnostic tests based on gene patents seems also
feasible, but might not be unproblematic.
The remaining three assumptions are that contractual, collaborative
models will come into being and function properly in the long run, if
they are based on the pre-existence of patent rights, if they prove to be
commercially sustainable and economically viable without overriding
 Of thickets, blocks and gaps 455

social motives, and if they contribute to restoring trust in the patent

system.
Testing the findings of the various authors against this additional
set of assumptions, teaches us the following. First, the pre-existence
of patent rights is indeed quintessential for the establishment of patent
pools, clearinghouses and open source models. Second, all the mod-
els display certain benefits in a for-profit, market context. Additional
economic research is necessary to provide a more refined and robust
assessment of their economically viability and commercial sustainabil-
ity in the long run. Further research is also required to identify incen-
tives for the establishment of such models, and to ascertain that the
models attract valuable patents and distribute usage rights efficiently
rather than create “markets for lemons”.361 Third, the various arrange-
ments also offer a unique opportunity to restore trust in both the private
and public interest objectives of the patent system pertaining to eco-
nomic and social welfare, and to discontinue ignoring the patent norm.
Further empirical research would be helpful to test this last assump-
tion. All in all, normative analysis, based on normative intuitions and
ethical theory, is also needed to make the underlying objectives and
values of patent law, the goals assumed by different stakeholders and
the solutions presented more explicit.

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 Index
AIDS pool 10 see also Patent pool in
genetics
Aircraft pool 3, 407 see also Patent pool
Anticommons 21–25, 110, 369
blocking patents, and 384, 389, 396, 448
genetics, and 4–5, 453
patent thicket, and 383, 396, 453
Anti-competitive concerns see
Competition law
Antitrust Guidelines for the Licensing
of Intellectual Property (‘IP
Licensing Guidelines’) (US) 6,
12 see also Competition law
Assay 252 see also Microarray
Authors’ society see Copyright collecting
society
AUTM 146
Bayh-Dole Act 54, 125, 249, 259
Bermuda principles 366, 377
Berne Convention 89
Biodiversity data
“primary scientific biodiversity
data” 121
sharing of biodiversity data 199
Biomarker 327, 331
Biomarkers Consortium 262–263, 264
BioForge see BiOS
BiOS 194–203, 426–431, 447 see also
CAMBIA; Open source genetics
background 194–196
benefits 194–196
BioForge 197–198
transfer of know how 198
BiOS Licenses 191–192, 195, 197,
199–201, 216, 426–431, 447
costs, revenue 201, 452
licences
BSD License 200, 424
non-exclusive licences 199
sublicences 199
improvements
patenting of improvements 200
sharing of improvements 199
biodiversity data, sharing of 199
commercial interest 201
goals 196
know how 198
open source philosophy 195–196,
201, 447
Patent Lens 71, 196–197 see also
Information clearinghouse
Biotechnology Directive (EU) 313, 333,
334, 335–336
BirchBob 72, 125–134, 414 see
also Technology exchange
clearinghouse
background 125
benefits 130–132
business model 125–129
commercial interest 132
disadvantages 130–132
geographical coverage 126
infrastructure 126–128
know how 128
technology exchange clearinghouse
126, 129–132
licensing of technology 126–128
patent option market 129
sale of technology 126–128
R&D collaborations 129
Blanket licence see Copyright collecting
society see also Licence
Blocking patent 389–391, 448 see also
Anticommons; Patent
blocking position, and 388
definition 21–25, 389–391, 389–390
diagnostic testing, and 389–390,
393, 453
remedies 400, 448 see also Compulsory
licence
BRCA see Diseases
BSD License 182, 200, 214, 424 see also
Open source
B2B 71 see also Technology exchange
clearinghouse
Call option see Option
CAMBIA 194–203, 202–208, 426–431
see also BiOS
465
466 Index

CBD 71, 121, 290 see also Information open access clearinghouse 419
clearinghouse royalty collection clearinghouse 328,
CD 55–56 see also Patent pool 420
CGIAR 290, 291, 362, 374–376 see also standard licence clearinghouse 419
ITPGRFA technology exchange clearinghouse
CIMMYT 376 327–328, 418–419
Claim Clearing mechanism 350–364, 404
product claim 317, 334 competition law
gene product claim 317–318 anti-competitive effects of clearing
limitation scope of product claim mechanisms 109, 408
334 pro-competitive effects of clearing
scope of gene claim mechanisms 6
France 335 typology by function
Germany 335–336 clearing mechanism facilitating
use claim 317, 318 access 350–351
Clearinghouse see also Copyright clearing mechanism facilitating
collecting society access and use 350–351
competition law 345–347, 446 collective rights organizations 350,
concept 69–82, 404, 413, 446 356–361, 363
cost 70 incomplete contract structures
definition 69 350, 361–362, 363, 425
economic perspective 446, 451 typology by model
evaluation criteria conventional clearing mechanisms
transaction cost 70, 415, 451 compulsory licence 28, 64, 67,
royalty stacking 70 301, 336–337
inclusion non-cooperative patent research exemption 64, 163, 164
holder 70 new clearing mechanisms 404 see also
examples 414 Clearinghouse; Open source;
IPR based 400, 441, 450, 455 Patent pool
liability regime 442 liability regime 294–295, 451
network effects 363 multi-firm public-private
set-up partnership 260–282
compulsory 70 “Code fork” see Open source see also
government intervention 70 Open source genetics
voluntary 70 Cohen-Boyer licence 369–370
typology 69 Collaboration
clearinghouses facilitating access 69, inter firm collaboration 250
70–74, 413–414 multi-firm collaboration 265–277
information clearinghouse 70–71, public-private collaboration 256–260,
140, 351, 371, 413–414 261–262, 269–270, 276–277
technology exchange see also Public-private
clearinghouse 71–74, 351, partnership
413–414 Collaborative measure
clearinghouses facilitating access and conventional collaborative measures
use 69, 74–82, 413, 414 404
open access clearinghouse 74–76, definition 399, 423
414 new collaborative measures 404
royalty collection clearinghouse funding
79–82, 414 public 122, 449–450
standard licence clearinghouse private 449–450
76–79, 414 initiative
Clearinghouses in genetics see also Patent compulsory initiative 70, 407
royalty collection clearinghouse government intervention 9, 28,
in genetics 43–44, 70, 449–450
information clearinghouse 327, private initiative 449–450
417–418 public initiative 449–450
 Index
statutory initiative 417
voluntary initiative 64, 70, 417
objective
non profit 152, 401, 452
profit 152, 401, 455
non-collaborative measures 404
open source, versus 423
patent thickets, and 443–450, 454
Collective action 366, 368, 371–378, 396,
399, 450
collective action institutions
goal 368
role 371
collective action problem 368
Collective management of copyright and
neighboring rights see Copyright
collecting societies
Collective measure see also Collaborative
measure
Collective rights organization 350,
356–361, 363 see also Copyright
collecting society
Complementarity
complementary patents 13–14, 47
complementary products 187, 362
complementary technology 13–14,
46, 47
Commission Block Exemption
Regulation on Technology
Transfer Agreements (TTBER)
(EU) 12–13
Commission Recommendation on
collective cross-border
management of copyright and
related rights for legitimate
online music services, 2005
(EU) 92
Commons 365–366 see also
Anticommons; BiOS; Creative
Commons; Governance; Public
good; Science commons
common pool good 417
definition 365
positive commons 451
protected commons 199
reconstructed commons 370–371,
417, 451
conctractually reconstructed
commons 370
goal 370
scheme 371
set-up 370, 371
semi-commons 303, 450
Competition law see also Essentiality;
FRAND terms; Grant back
abuse of dominant position 67, 94
467
Antitrust Guidelines for the Licensing
of Intellectual Property (‘IP
Licensing Guidelines’) (US)
6, 12
article 81 EC treaty 90–91, 93, 98,
345
article 82 EC treaty 93, 94, 95, 97
Commission Block Exemption
Regulation on Technology
Transfer Agreements (TTBER)
(EU) 12–13
Essential facilities doctrine 67
European Commission 341–343, 408
EU framework 93–98, 408
(independent) expert 14, 36, 45, 46, 47
Transfer Technology Guidelines
(TTG) (EU) 13
US antitrust authorities 341
US framework 93–98, 408
Compulsory licence see Licence
Consumer electronics 55–56, 106, 406
Contractual measure see also
Collaborative measure; Norms;
Rules
definition 399
patent thickets, and 399–400, 443–450
Contractually reconstructed public
domain see Public domain
Copyleft see Open source
Copyright collection society 83–104,
151–160, 166–167, 359–361
blanket licence 85–86, 96, 102–103,
135, 153–154, 359–360, 415,
421
characteristics 83
collective rights organization 350,
356–361, 363
Commission Recommendation
on collective cross-border
management of copyright and
related rights for legitimate
online music services, 2005
(EU) 92
competition law issues 93–98, 101–102,
158–160
reciprocal agreements between
copyright collection societies 98
relationship between copyright
collection society and members
94–95
relationship between copyright
collection society and users
95–98
costs 155–156
criticism 99–100, 101
definition 83–84
468 Index
Copyright collection society (cont.)
economic perspective 350–351,
359–361, 362, 363
examples
ASCAP 79, 94, 95, 96, 97, 98, 356,
359, 415
BMI 94, 96, 97, 98
Buma/Stemra 79
GEMA 152, 153, 415
SABAM 79, 152, 160, 415
SACEM 79, 152, 160, 415
forms 152
functions 152–154
documentation 153
collection of licences 153–154
distribution of fees 154
governance 101
justification 155
in general 151–152
economic justification 86–88
high barrier of entrance 86
economics of scale 86–87
network effects 87–88
socio-cultural justification 88–89,
155
legal framework 89–93
European 89–93
international 89
Berne convention 89
Rome convention 89
licensing practices/blanket licence
85–86, 96, 102–103, 359–360
monopoly, of copyright collecting
societies 86, 93, 158–159
new technologies 156–158
digital copying 157
internet 158
multimedia carriers 157
revenue 360
royalty setting 103–104
set-up
non profit 152
profit 152
stability 361
transparancy 100
Cournot’s theory 10, 356
Creative Commons 77–78, 146, 156, 352,
414 see also Commons; Standard
licences clearinghouse
DArT 203, 204–212, 426–429, 430 see
also Open source genetics
background and history 204–205
business model 208–209
CAMBIA, and 202–208
economic evalution 452
history 204–205
infrastructure and technology
205–206
licensing 206–208
patents 206
products 209–210
contract research 210
genetic testing 210
genotyping service 210
technology 205–206
translation to genetics 211
Diagnostic test see Genetic diagnostic test
Digital copying 157 see also Copyright
collecting society
Digital technologies 87–88 see also
Copyright collecting society
Dilemma
diffusion/innovation dilemma 369,
440
exploration/exploitation dilemma 369,
440
“second order dilemma” 369
Diseases see also Patent pool in genetics
Bone Morphogenetic Protein 7 331
BRCA see also Myriad
licensing 22, 52–53, 318, 319–324,
391, 402
patenting 22, 52–53, 318, 391, 402
CF 23, 56–57
licensing 25
patenting 25
HD 22–23, 25
HH 28
HNPCC 23, 24–25, 411–412
monogenetic disease 317, 388,
453–454
multifactorial disease 317, 454
multi-gene based disease 23–24, 388
polymutational disease 23–24, 52–53,
411, 412
Sarcomas (Ewing tumor, alveolar
rhabdomyosarcoma,
desmoplastic tumor,
synovialosarcoma) 331
Dispute resolution mechanism 14, 37, 39
Dominant position see Competition law
Downstream research
definition 393
problems 384, 393, 438, 448
product development, and 369, 396
remedies 333, 404, 448
Drug development 315–316, 412
drug delivery 395
drug development discovery 247–283
DVD pool 44, 357, 359, 406 see also
Patent pool
 Index
eBay Decision 57–59, 411
Economic theory see also Transaction
costs
Cournot 10, 356
exchange 351–355
“market for lemons” 103, 455
network effect 352, 363
Pasteur’s Quadrant 367
rent seeking 87
Economic viability 401, 451–452, 455 see
also Clearinghouse; Patent pool
Eco-Patent Common Initiative 74–75 see
also Open access clearinghouse
Enforcement 108–109
Entitlement theory 296, 431–432
EPIPAGRI 72 see also PIPRA; Technology
exchange clearinghouse
EPO
opposition procedure 323
ESHG
Recommendations on Patenting and
Licensing in Genetic Testing
324–326, 444, 445, 453
Espacenet 71, 414 see also Information
clearinghouse
Essential facilities doctrine see
Competition law
Essentiality see also Competition law
essential features of an invention
389–390
essential patents 13, 14, 36, 47,
386–387
essential technologies 13, 14, 36, 37,
46, 47, 342–343
EST 311, 312
Ethics
badge of ethical approval 231
open source, and 219–243
EU Biotechnology Directive
see Biotechnology
Directive
Exchange theory 351–355
FRAND terms 14, 36, 82, 227, 343 see
also Competition law; Patent
pool
Free biology 425
Free redistribution 422 see also Open
source
Free software 174, 423
Freedom to operate 140, 331
FSF 175
Funding see Collaborative measure
GBIF 71, 120–124, 417–418 see also
Information clearinghouse
469
background 120–122
business model 121–122
CBD 121
data repository 121–122
information clearinghouse 120,
122–123
infrastructure 121–122
translation to gene patents 123
Genbank see INSDC
Gene
monogenic gene 314–316
multifactorial gene 314–316, 411
patentability of genes see gene patents
Gene banks see Germplasm
Gene patent 63, 311–330 see also Claims
disease gene patent 388
exercise 63
existence 383, 443–445
exploitation 63, 225, 226
EST patent 311, 312
impact 384
limitations 333–334
Genetic diagnostic test see also Diseases;
Microarray; GWAS
definition 316, 387, 390
licensing 318–324
monogenetic test 453–454
multifactorial test 454
patenting 317–318, 443–444
polymutationally correlated genetic
diagnostics 52–53
Recommendations on Patenting and
Licensing in Genetic Testing of
the ESHG 326, 444
Genetic diagnostic method see also
Genetic diagnostic test
definition 387
Germplasm 375
collection of germplasm 290
exchange of germplasm 289, 290
GFP pool 18–19, 410 see also Patent pool
in genetics
Global Biocollecting Society 79–80, 420
see also Royalty collecting
clearinghouse; Patent royalty
collecting clearinghouse in
genetics
GNU 77, 164–175 see also Open source
Golden rice pool 16–17, 50–51, 409
see also Patent pool in
genetics
Google 70, 71, 414 see also Information
clearinghouse
Governance 99–100, 101, 378
commons, and 372–373
science commons, and 365, 378
470 Index

GPL 77, 176, 213, 424–425 see also Open
source
3GPP 8 see also Patent platform
Grace period 313–314, 445
Grant back 14, 82, 417 see also
Competition law
GUS technology 426 see also DArT
GWAS 314–315 see also Genetic
diagnostic test
HapMap 215–216, 313
High-throughput screening 252, 255,
311, 314–315, 454
HUGO 328
Position statement on cDNA patents
311
Statement on patenting DNA
sequences 312
Human rights 402
ICT pool 4 see also Patent pool
Ignorance see Norm see also Veil of
ignorance
Incomplete contract structures 350,
361–362, 363, 425
concept 350–351
examples
CCS 362, 363
CGIAR 362
open source 362, 363, 425
small molecules initiative 362
see€also Multi-firm �public-
private partnership
Infringement see Patent infringement
Information clearinghouse 70–71, 140,
351, 371, 415
definition 70, 351
examples
in general
Espacenet 71, 414
Google 70, 71, 414
Pubmed 70
in genetics
CBD 71, 121, 290
GBIF 71, 120–124, 417–418
INSDC 376–377
Patent Lens 71, 196–197
PIPRA 72, 135–142, 191,
418–419, 447
evaluation criteria
inclusion non-cooperative patent
holder 71, 415
royalty stacking 71, 415
transaction cost 71, 351, 415
Institutions see also Norms
collective action institutions 367
cost 368
formal institutions 367
informal institutions 367
interaction between law and
institutions 372
self organized institutions 372–373
Intermediary 87–88, 104 see also Trusted
intermediary
Internet 88, 158
Interoperability 38–39, 411
INSDC 376–377
“IP ambush” 179–180 see also Patent
thicket
IP fragmentation 42–49 see also Patent
thicket
ITPGRFA 289–293, 375–376, 434 see
also CGIAR; Liability regime
background 289–290
benefits 291, 376
coverage 434
infrastructure 290–292
liability regime 291–292
MLS 291
SMTA 291–292, 434
transaction cost 351
Know-how see Trade secrets
Knowledge
diffusion of knowledge 369–370
knowledge management 226–229
precompetitive knowledge 248
Liability regime 291–292, 294–295,
431–434, 442, 451
benefits 434
comparison with
call option 298–299
put option 299–304
concept 295–299, 404, 431–432
definition 294–295
disadvantages 434
economic perspective 295, 350
examples
clearinghouse 305
compulsory licence 301, 433 see also
Licence
ITPGRFA 72, 135–142, 191,
289–293, 303, 418–419
multi-firm public-private
partnership 260–282, 433, 451
patent pools 305, 344, 433, 442,
451
prior user rights 301, 433
royalty collecting societies 442, 451
incentive 295
typology
 Index 471

codified liability regime 432–433 benefits 34, 35

contractually constructed liability branding 39
regime 271–273, 432, 305–306, elements 34–37
351, 432–433 dispute resolution mechanism 37
Liability regime in genetics 271–273, essential technologies 36, 37
434–437 see also ITPGRFA; FRAND terms 36
Multi-firm public-private independent expert 36, 37
partnership legal tenability 35–36
call option, and 437 marketability 35
put option, and 437 non-exclusive licences 36
Licence see also Refusal to license royalty allocation formula 36
all-in-one licence 405 valid patents 35, 36
bilateral licence 403–404 economic perspective 356
blanket licence 85–86, 96, 102–103, geographical coverage 34
135, 153–154, 359–360, 415, infrastructure 35
421 interoperability 38–39
BSD License 182, 200, 214, 424 inventing around 39, 393, 404
Cohen-Boyer licence 369–370 litigation 39
compulsory licence standards 38
against blocking patents 400, 448 MPEG-2 pool 4, 33–41, 357, 406–407
against holdouts 409, 448 see also MPEG LA; Patent pool
in general 28, 64, 67, 301, 336–337 MTA 144–146, 377 see also Science
liability regime, and 433 Commons
for public health 336 ITPGRFA, and 289–293
cross licence 403–404 SMTA 291–292, 434
exclusive licence UBMTA 146–147, 148
GPL License 77, 176, 213, 424–425 Multi-firm public-private partnership
multi-party licence 404 260–282, 433, 435–437, 447
non-exclusive licence 14, 36, 199, 344 benefits 436, 437
non-voluntary licence 156 competition law issues 280–282
one-stop-licence 405 disadvantages 436–437
standard licence 76–79, 105–107, economic perspective 362, 363
140–141, 143–144 examples
Licensing authority 34–37 concrete example 274–276
Licensing guidelines see also NIH existing examples 260–263
Antitrust Guidelines for the Licensing new example 264–265
of Intellectual Property (‘IP exchange of
Licensing Guidelines’) (US) information 304
6, 12 trade secrets 266
Recommendations on Patenting and incentives 277
Licensing in Genetic Testing of academia 278–280
the ESHG 326 firms 277–278
Transfer Technology Guidelines trusted intermediary 289
(TTG) (EU) 13 IPR based 400, 441–442, 450
Linux 176, 235–236, 424 see also Open liability regime, and 270–271, 433,
source 434, 436, 442, 451
Litigation 39, 407 objectives 265
participants 273–274
“Market for lemons” 103, 455 revenue 450–451
Microarray 205, 332, 412, 438, 454 see trade secrets 266, 435, 436
also Assay transaction costs 436, 452
Misappropriation 277–278 trusted intermediary 274–275, 280,
MLI 257–258, 435 286, 447
MLS 291, 434 see also ITPGRFA set-up
MPEG LA 33–41, 356, 406–407 Tier 1. Behind the veil of ignorance
background 33–34 267–270
472 Index
Multi-firm public-private partnership
(cont.)
Tier 2. Beyond the veil of ignorance
270–271
Multimedia carrier 157
Multi-party agreement 403–404
Myriad Genetics 22, 318, 319–324, 391,
401 see also BRCA
Network effect 363
definition 352
Neurocommons Project see Science
Commons
NIH
Best Practices for the Licensing of
Genomic Inventions, Final
Notice (2005) 366
MLI 257–258, 435
Principles and Guidelines for
Recipients of NIH Research
Grants and Contracts on
Obtaining and Disseminating
Biomedical Research Resources
147–148
Regional Translational Research
Centres Initiative 434
Roadmap 434
Roadmap for medical research 280
Norms see also Institutions; Rules
formal norms 374
ignoring the norm 163, 401–403, 404,
448, 452–453, 455
informal norms 374, 400, 448
social norms 374
Nuffield Council 317–318, 322, 328
Open access 419
Open access biology 425
Open access clearinghouse 74–76, 416,
419 see also Open source; Open
source genetics
definition 74
examples
Eco-Patent Commons 74–75
SNP Consortium 19–20, 29, 75–76,
186, 215, 232–233, 313, 410,
414, 419, 446
evaluation
inclusion non-cooperative patent
holder 76, 416
royalty stacking 76, 416
transaction cost 76, 416
Open innovation 132–133
collaborative innovation, versus 423
Open source
benefits 187, 425
BSD License 182, 200, 214, 424
concept 213–214, 228, 230–231, 404,
419, 422–423, 450
conditions 179–183, 423–424
competition (“code fork”) 180–182,
183, 214, 423–424
copyleft 175–176, 182–183, 213, 424,
428–430, 423–424
credible commitment (IPR based)
183, 214, 400, 423–424, 441,
450, 455
competition law 345, 425
disadvantages 425
economic perspective 350, 351, 362,
363
GNU 77, 164–175
GPL 77, 176, 213, 424–425
improvements 428
liability regime, and 451
Linux 176, 235–236, 424
open source biology 425
OSD 178–179
revenue 184–188, 362, 450–451
complementary products 187, 362
market positioner 188, 362
provision of services 187–188
risks 425
source code 422
Stallman, Richard 174–175, 213
typology 424
Open source genetics 189–190, 214–217,
234–239, 240, 425–431, 455
concept 425
conditions
competition (“code fork”) 217,
427–428, 447
copyleft 190, 214–215, 428
credible commitment (IPR based)
215–217, 427
cost 190
disadvantages 430–431
examples
BiOS 195–203, 426–431, 447
DArT 203, 204–212, 426–429, 430
PIPRA 72, 135–142, 191, 418–419,
447
Science Commons 77, 105, 143–150,
191, 371–372
grant back licence 428
liability regime, and 442, 451
non-exclusive licence 428
revenue 429–430
Option theory 446
call option 298–299
put option 299–304, 446
OSD 178–179 see also Open source
 Index 473

Public good 224, 226 see also Commons 3GPP 8, 406

club good, and 447
common pool good, and 447
public good dilemma 368
Public-private see also Collaborative
measure
public-private collaboration 260
public-private divide 256–257
public-private partnership
multi-firm public-private
partnership 260–282
single firm public-private
partnership 276
Pasteur’s Quadrant 367
Patent see also Blocking patent;
Complementarity; Essentiality;
Gene patent
complementary patent 13–14, 47
diagnosis specific patent 20–21, 388
essential patent 13–14, 36, 47, 386–387
substitute patent 343
technology specific patent 20–21, 388
Patent application
strategic patent applications 200
Patent fragmentation 43 see also Patent
thicket
Patent holder see Patent owner
Patent injunction 57–58, 411
Patent infringement 301–302, 338
Patent validity 13, 35, 36, 46, 47, 48
Patent law
functions of patent law 394–396
function to provide legal guarantees
394
regulatory function 394, 395, 397,
440
horizontal regulatory function
394, 398, 443, 454
vertical regulatory function 394,
395, 397, 454
symbolic function 394
limits to patent law 394–396
objectives of patent law 384, 394, 395,
397, 402
incentive to disclose 369, 394, 440
incentive to innovate 369, 394, 440
patent law justification theories 394
Patent Lens see BiOS
Patent owner
patent owner holdout 53–55, 299, 369,
396, 411, 448
definition 409
purposeful holdout 409
uncooperative patent owner 70, 71, 76,
78, 82, 109, 163, 166
Patent platform 8–9, 406, 412, 454
Patent pool see also MPEG LA
benefits 9–10
competition law 340–344, 346, 408,
446
concept 5–14, 404, 405, 446, 450
conditions 13–14
complementary technologies 13–14,
408
dispute resolution mechanism 14
essential technologies 13–14, 36,
342–343, 406, 408
FRAND terms 14, 343, 408
grant back provisions 14
independent expert 14, 36, 45, 46,
47
non-exclusive licences 14, 36, 344,
408
royalty allocation formula 14, 36
valid patents 13, 408
trade secrets 14
definition 5
economic perspective 10, 351,
356–359, 446, 451
examples
aircraft pool 3, 407
CD 55–56
DVD pool 44, 357, 359, 406
ICT pool 4
MPEG-2 pool 4, 33–41, 357,
406–407
sewing machine pool 3
incentives 6
initiative
compulsory 28
voluntary 27–28
IPR based 400, 441, 450, 455
liability regime, and 433, 442, 451
marketability 35
network effects 363
revenue 357–359, 450–451
risks 9–10
set-up 7, 341
stability 358–359
standards, and 405, 406, 410–411
typology
joint licensing schemes 7, 405
pools with licensing administrator 8
patent platform 8, 412
Patent pool in genetics see also Diseases
benefits 25–28, 45–47
conditions
complementary technologies 47
essential technologies 47
independent expert 36, 46
valid patents 47
474 Index

Patent pool in genetics (cont.) monitoring 108–109

cost 26–27, 46 reporting 107–108
economic perspective 451 risks 109–111
examples royalty
AIDS pool 10 collection 107–108
GFP pool 18–19, 410 disbursement 107–108
Golden rice pool 16–17, 50–51, 409 set-up 104–105, 421
HH 28 standards 106
HNPCC pool 24–25, 411–412 trade secrets, know how 110–111
SARS pool 17–18, 43–49, 51, 410 transaction costs 105
SNP consortium 19–20, 410, 414, 446 Patent thicket 369, 385–389 see also
incentives 25–28 Anticommons; Downstream
policy 16 research; Patent fragmentation;
network effects 363 Patent tsunami; Upstream
revenue 26–28 research
risks 25–28 agricultural biotechnology, and
typology of patents in pool 136–138
diagnosis specific patents 20–21 definition 3, 33, 385–387
technology specific patents 20–21 developing countries, and 195
Patent royalty collection clearinghouse diagnostics, and 388–389, 411, 438,
100–104, 416–417 449, 453, 454
competition law issues 101–102, 416 genetics, and 3–4, 15–16, 21–25,
complementary know-how 417 42–43, 50–52, 64–66, 383, 393,
governance 101 449, 453
grant back clause, and 417 horizontal patent thicket 21, 53,
legitimacy 100 388–389, 412, 454
liability regime, and 442, 451 vertical patent thicket 21, 53, 388, 412
licensing practices 102–103 Patent tsunami 331–338, 383 see also
royalty setting 103–104 Patent thicket
Patent royalty collection clearinghouse in PCR 73, 316
genetics 104–111, 166–167, 420, Pharmacogenetics 24, 82, 412
421, 454–455 Pharmokinetics 260
access 107–108 PIPRA 72, 135–142, 191, 417, 418–419,
benefits 109 447 see also EPIPAGRI;
competition law 420–421 Information clearinghouse;
cost 111 Open source genetics; Standard
definition 104–105 licenses clearinghouse;
disadvantages 109–111, 420–421, Technology exchange
444–445 clearinghouse
enforcement 108–109 background 135–139
evaluation 109, 162–166 business model 139–142
inclusion non-cooperative patent clearinghouse type
holder 109, 163, 166 information clearinghouse 140, 447
royalty stacking 109, 163, 164–166 standard licence clearinghouse
transaction cost 109, 162–164 140–141, 447
examples technology exchange clearinghouse
Global Biocollecting Society 420 140–141, 447
infrastructure 104–105 disadvantages 415
initiative infrastructure 139–142
compulsory 104 royalty 416–417
non-profit 104 Prior user rights 433
profit 104 Property theory 294–307, 417 see also
voluntary 104 Entitlement theory; Patent law
legal status 104–105 PSTC 262–263, 264
licensing practices/standard licence Public domain 223, 365, 370 see also
105–107 Commons; Liability regime
 Index
contractually reconstructed public
domain 367–371
exclusions from public domain
223–224
Public interest 57–58, 171, 280–282, 301
Public policy 219–220
Public welfare 11, 224–225
Put option see Option
Reconstructed public domain see Public
domain
Refusal to license 64, 66–67, 369, 391,
395, 396 see also Blocking
patent; BRCA; Myriad
Regional Translational Research Centres
Initiative 434
Rent seeking 87
Research
applied research 367
definition 393
basic research 367
definition 393
research exemption 64, 163, 164, 404
research tool 419, 426, 429, 430
Research assumptions 399–403,
443–453
starting goals, and 397–399, 442–443,
454
research hypothesis, and 403, 455
research question, and 397–403, 454
RFLP 206
Rome Convention 89
Royalty collection clearinghouse 79–82
definition 79
examples
in copyright
ASCAP 79, 94, 95, 96, 97, 98,
356, 359, 415
Buma/Stemra 79
Collective management of
copyright and neighboring
rights 151–160
SABAM 79, 152, 160, 415
SACEM 79, 152, 160, 415
in genetics
Global Biocollecting Society
79–80, 420
evaluation criteria
inclusion non-cooperative patent
holder 82
royalty stacking 81–82
transaction cost 81–82
initiative (voluntary) 82
intermediary 80–81
liability regime, and 442, 451
patent portfolio 82
475
Royalty stacking 28, 70, 71, 76, 78, 81–82,
109, 163, 164–166, 383, 438
Rules see also Norms
formal rules 367, 370, 371, 373, 415
definition 373
distinction
formal institutional policies
373–374, 445
formal legal rules 373–374, 445,
454
formal rules of contracts 373–374,
398, 399, 443, 454
examples 374–378
informal rules 367, 370, 372, 373–374,
415, 448
definition 373, 374
examples 374–378
purely informal rules 377
SARS pool 17–18, 42–49, 51, 406,
408, 410 see also Patent pool in
genetics
background 42, 44–45
benefits
clearing blocking positions 47
dissemination of technology 47
stimulation of innovation 47
elements
complementary technologies 46, 47
essential technologies 46, 47
independent expert 45, 46, 47
valid patents 46, 47, 48
IP fragmentation 43
letter of intent 45
standards 48
transaction cost 45, 46
SARS corona virus outbreak 44, 51
Science commons 366, 367, 452, 453
see also Commons; Governance;
Open source genetics
definition 366
Science Commons 77, 105, 143–150,
191, 371–372 see also Standard
licences clearinghouse
Biological Material Transfer
Agreement Project 77–78, 105,
143–150, 419–420, 441
background 143–144
benefits 150
business model 148–150
material transfer agreements 144
standard contracts 146–150
standard licence 143–144
tangible subject matter 441
transaction cost 144–145
Neurocommons Project 77
476 Index
Scientific Research Commons see Science
commons
Seed banks see Germplasm
Semi-commons see Commons
Sewing machine pool 3 see also Patent pool
SIR 302–303
SLA 46, 148
Small molecule see also Multi-firm
public-private partnership
definition 247
libraries of small molecules 251
small molecules chemicals 251
SMTA 291–292, 434 see also ITPGRFA;
MTA
SNP Consortium 19–20, 29, 75–76, 186,
215, 232–233, 313, 410, 414, 417,
419, 446 see also Open access
clearinghouse; Patent pool in
genetics
Source code 422 see also Open source
Stallman Richard 174–175, 213 see also
Open source
Standard 6 see also SMTA; Standard
licences clearinghouse
cooperative standard setting 11–12,
410–411
definition 406
de jure standard 406
de facto standard 406
genetics, and 25–26, 38, 56–57, 59,
106–107, 410–411
ICT, and 6, 25–26, 38
industry, and 106–107
standard agreement 416
standard clause 416
quality control, and 411
XML standard 127
Standard licences clearinghouse 76–79,
416, 419–420, 455
definition 76–77
examples
in general
Creative Commons 77–78, 146,
156, 352
in genetics 112–113
PIPRA 72, 135–142, 191,
418–419, 447
Science Commons – Biological
Material Transfer Agreement
Project 77–78, 105, 143–150,
419
Science Commons –
Neurocommons project 77
evaluation criteria 420
inclusion non-cooperative patent
holder 78
royalty stacking 78
transaction cost 78–79, 351–352
infrastructure 148–149
Science Commons Biological Material
Transfer Agreement Project see
Science Commons
Scientific Research Commons see Science
commons
Supreme Court
eBay decision 57–59
Target validation 254, 258
Technology exchange clearinghouse
71–74, 351, 415–416
definition 351
examples
in general
B2B 72
BirchBob 72, 125–134, 414
Pharmalicensing 72, 414
Tech Ex 72, 414
Yet2.Com 72, 414
in genetics
EPIPAGRI 72
PIPRA 72, 135–142, 191,
418–419, 447
evaluation criteria
inclusion non-cooperative patent
holder 415–416
royalty stacking 415–416
transaction cost 415–416
Technology holder 128
Technology transfer agreement 128
Technology user 128
Trade secret 446
exchange of trade secrets 110–111, 128,
407, 417
leakage of structural information 278
safeguards for sensitive business
information 14
small molecule libraries, and 266, 435,
436, 440
TransBacter technology 426
Transparency 100, 130–131
Transaction cost 45, 46, 70, 71, 76, 78,
79, 81–82, 105, 109, 144–145,
162–164, 250, 305, 339,
351–355, 392, 415, 416, 436
definition (search costs, bargaining
costs, enforcements costs) 65,
452
Transfer Technology Guidelines (TTG)
(EU) 13
Translational gap 384, 392–393, 396, 453
see also Valley of Death
TRIPs 237
 Index 477

Trust
restoring trust 401–403, 452–453,
455
Trusted intermediary 274–275, 280, 286
see also Intermediary; Multi-firm
public-private partnership
TTBER see Commission Block
Exemption Regulation No.
772/2004 on Technology
Transfer Agreements (EU)
TTG see Technology Transfer Guidelines
(EU)
UBMTA 146–147, 148 see also MTA
Uncertainty 304, 410
innovation, and 361–362, 425, 434
reduction of uncertainty 410
University
academic-industry negotiations 392
cooperation with US universities 125
see also Bay Dohle Act
Upstream research
definition 393
problems 383, 438
remedies 332, 404, 448
User community 366
Validity see Patent
Valley of death 248, 251, 384, 391, 438,
453 see also Translational gap
Veil of ignorance 223–224, 266
WFCC 377–378
WHO Tropical Disease Network 276
Cambridge Intellectual Property and Information Law

Titles in the series (formerly known as Cambridge Studies

in€�Intellectual Property Rights)

Brad Sherman and Lionel Bently╇

The Making of Modern Intellectual
� Property Law
978 0 521 56363 5
Irini A. Stamatoudi╇
Copyright and Multimedia Products: A Comparative
� Analysis
978 0 521 80819 4
Pascal Kamina╇
Film Copyright in the European Union
978 0 521 77053 8
Huw Beverly-Smith╇
The Commercial Appropriation of Personality
978 0 521 80014 3
Mark J. Davison╇
The Legal Protection of Databases
978 0 521 80257 4
Robert Burrell and Allison Coleman╇
Copyright Exceptions: The Digital Impact
978 0 521 84726 1
Huw Beverly-Smith, Ansgar Ohly and Agnès Lucas-Schloetter╇
Privacy, Property and Personality: Civil Law Perspectives on Commercial
Appropriation
978 0 521 82080 6
Philip Leith╇
Software and Patents in Europe
978 0 521 86839 6
Lionel Bently, Jennifer Davis and Jane C. Ginsburg╇
Trade Marks and Brands: An Interdisciplinary Critique
978 0 521 88965 0
Geertrui Van Overwalle
Gene Patents and Collaborative Licensing Models: Patent Pools,
�Clearinghouses, Open Source Models and Liability Regimes
978 0 521 89673 3